Private Loan Agreement AU | Outside National Credit Code

In Australian law a loan is a contract: the lender advances money and the borrower promises to repay an equivalent sum, with or without interest. A family loan agreement is that contract put in writing between people who know each other, most often a parent and an adult child, siblings or close friends. An oral loan can be enforced, but proving one after the relationship sours is another matter. The usual pattern: money moves, nothing is signed, and years later the recipient calls it a gift. Where the transfer runs from parent to child, the presumption of advancement confirmed by the High Court in Nelson v Nelson (1995) 184 CLR 538 starts the analysis on the gift side, and the parent must rebut it with evidence of intention.

The document is often confused with two neighbours. A deed of gift for money handed over without repayment records the opposite intention, and Centrelink, banks and family courts expect the paperwork to match reality. A personal loan from a bank is a regulated credit contract with disclosure, hardship and responsible lending obligations; a private loan between relatives carries none of them. Our template can also be executed as a loan deed, which removes any argument about consideration for a guarantor and, in most jurisdictions, lengthens the time available to sue.

The starting point is the National Consumer Credit Protection Act 2009 (Cth), whose Schedule 1 contains the National Credit Code. Under section 5 of the Code, a contract is regulated only when every element is present: the borrower is a natural person, the credit is predominantly for personal, domestic or household purposes (or residential investment property), a charge is made for it, and the lender provides credit in the course of a business or incidentally to another business. A mother lending to her son fails the business test, and an interest-free loan fails the charge test as well. The same reasoning keeps the lender clear of licensing under section 29 of the Act, set out in the National Consumer Credit Protection Act 2009 on the Federal Register of Legislation. The exemption falls away once lending becomes repeated and commercial, so regular lenders charging interest should take advice.

Outside the Code, general contract law and equity apply. The penalty doctrine restated in Paciocco v Australia and New Zealand Banking Group Ltd (2016) 258 CLR 525 strikes down default charges out of all proportion to the lender's legitimate interest. Family guarantees attract the unconscionable dealing and undue influence principles in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447, Garcia v National Australia Bank Ltd (1998) 194 CLR 395 and Thorne v Kennedy (2017) 263 CLR 85.

Interest received is assessable income under section 6-5 of the Income Tax Assessment Act 1997, while a loan from a private company to a shareholder or associate falls under Division 7A of the Income Tax Assessment Act 1936, with a benchmark interest rate and maximum terms of seven years unsecured or twenty-five years secured. In insolvency, a trustee reviewing transfers to relatives under section 120 of the Bankruptcy Act 1966 treats a documented loan very differently from an undocumented handout.

The most common request is the home deposit from the Bank of Mum and Dad. Parents usually want the money back if their child's relationship ends, which only works when the loan is documented before settlement and disclosed to the mortgage lender. When a couple separates, the Federal Circuit and Family Court of Australia decides in a property settlement under section 79 of the Family Law Act 1975 whether a parental advance is a genuine debt or a soft loan nobody meant to enforce. Families wanting more certainty pair the loan with a binding financial agreement signed by the couple under the Family Law Act.

Smaller loans for a car, course fees or rent between jobs follow the same logic. Friends backing a new venture should lend to the company rather than to the founder, and where they also take equity the terms belong in a shareholders agreement for an Australian Pty Ltd. Parents who want to treat their children equally use a loan agreement so that an advance to one child can be brought into account against that child's inheritance. And a lender on the Age Pension should know that Services Australia assesses an outstanding loan as a financial asset subject to deeming, while forgiving it later is treated as a gift under the deprivation rules.

• The parties, principal and purpose clause names every borrower, states the amount advanced and records how the funds were paid. The purpose statement matters if a court or Services Australia later asks what the money was for.
• The repayment schedule offers regular instalments, a single lump sum on a fixed date, or repayment on demand after a minimum period. Early repayment is allowed without charge, and payments go to interest first.
• The interest clause can be set at nil or at a fixed annual rate calculated daily. The lender's tax obligation on interest received is flagged.
• The default and acceleration clause gives the borrower a written notice and a fixed period to catch up before the whole balance becomes payable. Any default interest is capped at a modest margin to stay on the right side of Paciocco.
• The guarantee and indemnity is a separate schedule signed by the guarantor. The guarantor confirms in writing that they received independent legal advice before signing, the best protection against an Amadio or Garcia challenge.
• The death, forgiveness and estate clause states whether the debt survives the lender's death or is released, so the agreement lines up with a last will and testament drafted for Australian succession law.
• The execution and governing law block lets you sign as a simple agreement or as a deed, nominates the state or territory whose law applies and adds a negotiation step before litigation.

New South Wales gives a lender six years to sue on a simple contract under section 14 of the Limitation Act 1969 and twelve years on a deed under section 16. An individual can execute a deed without a seal if it is signed and witnessed by a non-party, as section 38 of the Conveyancing Act 1919 allows. Written acknowledgement or part payment restarts the clock under section 54. Guarantors there can also invoke the Contracts Review Act 1980 against an unjust contract.

Victoria keeps the six-year period for contracts under section 5(1)(a) of the Limitation of Actions Act 1958 but allows fifteen years on a deed under section 5(3). A guarantee is unenforceable unless it is in writing and signed by the guarantor, as required by section 126 of the Instruments Act 1958. The seal requirement for deeds by individuals was removed by section 73A of the Property Law Act 1958.

Queensland changed its rules when the Property Law Act 2023 commenced on 1 August 2025. For deeds made after that date, the limitation period under the Limitation of Actions Act 1974 fell from twelve years to six. A Queensland lender who chose a deed for its longer limitation period no longer gets that benefit on a new deed. Contract claims stay at six years under section 10(1)(a).

Western Australia applies a six-year period under section 13 of the Limitation Act 2005. The Statute of Frauds 1677 still requires a guarantee to be evidenced in writing and signed.

Northern Territory is the outlier. Section 12 of the Limitation Act 1981 gives only three years to sue on a simple contract, half the period in South Australia, Tasmania and the ACT, so Territory lenders should chase arrears early or sign a deed, covered by section 14.

You start by choosing the state or territory whose law will govern the loan, usually where the borrower lives. The form then adjusts the execution block and guarantee formalities to match. Next you enter the lender and borrower details, the principal and the payment method; a bank transfer referenced "family loan" leaves a far better trail than cash.

The repayment section asks you to pick instalments, a lump sum or repayment on demand, then set the interest rate or leave it at nil. If a guarantor is involved, you add their details and the form generates the separate guarantee schedule with the independent advice acknowledgement. You then decide between a simple agreement and a deed, with the effect of each explained on screen.

Once the answers are complete, you download the document in Word and PDF, print it, and sign with the required witness. Each party keeps a signed original of the loan agreement and a record of every repayment.

The most expensive mistake is signing after the money has already moved. An agreement prepared once a separation is looming invites the argument that it was manufactured for litigation. Never backdate a loan agreement; sign a fresh document that acknowledges the earlier advance and its real date instead. Handing over cash is the second mistake, since it leaves no evidence of the principal. Lenders who never ask for a repayment and never obtain a written acknowledgement let the limitation period run, and in the Northern Territory that can happen in three years.

Guarantees fail for predictable reasons. A parent guaranteeing a sibling's loan at the kitchen table, with the borrower in the room and no independent advice, is exactly the fact pattern the High Court has refused to enforce. Default interest that doubles the rate after one missed instalment will likely be read as a penalty. Finally, a loan left out of the will creates disputes the agreement itself cannot fix.