Loan Agreement Drafting in India: Secure Repayment Terms Before You Lend
Lending or borrowing money on a verbal promise leaves both sides exposed if repayment goes wrong. A properly drafted Loan Agreement fixes the interest rate, repayment schedule, and consequences of default in writing. This guide explains what it must cover and how KanoonPe drafts one for you.
Quick summary
- What it is: A contract recording the terms on which one party lends money to another, including interest and repayment.
- Governed by: Indian Contract Act, 1872 (Sections 2(d), 148, 172 on consideration and pledge); RBI/usury guidance on interest rates.
- Best for: Individuals, businesses, and family lending arrangements needing an enforceable repayment record.
- KanoonPe price: Flat, all-inclusive quote on a free callback · Delivery: 1–2 working days.
Quick facts
| Detail | Information |
|---|---|
| Governing law | Indian Contract Act, 1872 |
| Registration required | Only if secured by a mortgage on immovable property (Registration Act, 1908) |
| Stamp duty | Payable per state Stamp Act; varies by loan amount and security type |
| Types | Secured vs unsecured; personal vs business loan agreement |
| KanoonPe price | Flat, all-inclusive quote - request a free callback |
| Delivery timeline | 1–2 working days |
| Who needs it | Individual lenders/borrowers, businesses, NBFCs, family lending arrangements |
What is a Loan Agreement?
A Loan Agreement is a legally binding contract between a lender and a borrower that records the principal amount, interest rate, repayment schedule, and consequences of default for a loan. It converts an informal money transfer into an enforceable obligation under the Indian Contract Act, 1872.
Unlike a simple promissory note, a loan agreement can include detailed clauses on security/collateral, prepayment, and governing law, making it suitable for larger or longer-term lending, whether between individuals, family members, or businesses.
Types of Loan Agreements
- Secured loan agreement - backed by collateral such as property, gold, or shares; if the collateral is immovable property, the mortgage deed may need registration under the Registration Act, 1908.
- Unsecured loan agreement - based purely on the borrower's promise to repay, with no collateral backing.
- Personal loan agreement - between individuals, often family or friends, for personal purposes.
- Business loan agreement - between a business and a lender (individual, company, or NBFC) for working capital or expansion.
Key clauses a Loan Agreement should contain
- Principal amount and disbursement - loan sum and how/when it will be paid to the borrower.
- Interest rate - annual rate, calculation method, kept within limits consistent with the Usurious Loans Act and RBI guidance to avoid being deemed excessive.
- Repayment schedule - instalment amounts, frequency, and final repayment date.
- Default and penal interest - consequences and additional interest if instalments are missed.
- Security/collateral - details of any asset pledged, and terms for its release on repayment.
- Prepayment terms - whether the borrower can repay early, and any charges for doing so.
- Governing law and jurisdiction - applicable state law and courts for disputes.
- Representations and covenants - borrower's confirmation of authority to borrow and use of funds.
Who should use a Loan Agreement
- Individuals lending or borrowing money from family, friends, or acquaintances who want a written record.
- Businesses taking or extending working-capital loans from directors, promoters, or third parties.
- Lenders offering secured loans against property, shares, or other collateral.
- Startups documenting founder loans to the company or vice versa.
Information and documents needed to draft it
- Lender and borrower details (name, address, PAN)
- Principal amount and disbursement method
- Interest rate and repayment schedule preference
- Details of any collateral/security offered
- Purpose of the loan
- Preferred governing state/jurisdiction
Ready to get started? Talk to a verified expert → - get a transparent, all-inclusive quote for your Loan Agreement within one business hour.
Drafting and delivery process
- Share your requirements. Tell us the loan amount, interest rate, repayment terms, and whether it's secured, via a short form.
- Lawyer drafts the agreement. A commercial lawyer prepares a customised draft with default and security clauses matched to your situation.
- Review and revisions. You review the draft; one round of revisions is included to adjust terms.
- Finalisation and stamping guidance. The final agreement is shared in signable format, with guidance on stamp duty and, if secured by immovable property, registration.
Loan Agreement drafting cost in India
| Cost component | What drives it |
|---|---|
| Lawyer drafting fee | Secured vs unsecured, complexity of repayment/security terms |
| Stamp paper | State-dependent, based on loan amount |
| Mortgage registration (if applicable) | Separate government fee, only for secured loans against immovable property |
KanoonPe offers a flat, all-inclusive quote - lawyer-drafted loan agreement with interest, repayment, and default clauses, delivered fast with no hidden charges.
Delivery timeline
| Stage | Typical time |
|---|---|
| Requirement gathering | Same day |
| First draft | Same day to 1 working day |
| Review & finalisation | 1 working day |
| Total | 1–2 working days |
Stamping and registration notes
Stamp duty on a loan agreement is payable as per the relevant state's Stamp Act, with rates varying depending on the loan amount and whether security is involved. Registration under the Registration Act, 1908 is not required for a plain unsecured loan agreement, but if the loan is secured by a mortgage over immovable property, the mortgage deed generally must be registered to be enforceable. Lenders extending loans regularly as a business (rather than a one-off personal loan) should also check RBI/NBFC regulatory requirements, since repeated commercial lending can attract licensing obligations.
Common mistakes and risks
- No written interest terms - verbal interest promises are hard to enforce and can later be disputed.
- Excessive interest rates - rates far above market/RBI norms risk being challenged as usurious and unenforceable.
- Missing default clause - without defined consequences, recovering overdue amounts becomes harder.
- Unregistered mortgage for secured loans - an unregistered mortgage deed on immovable property may not be legally enforceable.
- Treating repeated lending as one-off - businesses lending at scale without checking RBI/NBFC norms risk regulatory issues.
Why choose KanoonPe
- Transparent flat pricing - one all-inclusive number for drafting, with no add-on fees for standard revisions.
- Filed-on-time or refund - every drafting order carries a written delivery SLA.
- One accountable case owner - a dedicated lawyer manages your Loan Agreement from brief to signature.
- Live status tracking - track drafting and review status in your dashboard.
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