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Learn more about Loan Agreement in Singapore

A personal loan agreement is a written agreement between two parties, usually a borrower and a lender. It specifies the amount of money borrowed as well as the terms for repaying the loan. This instrument, also known as a personal loan contract or master promissory note, protects the parties in the event of a disagreement or dispute. Borrowers might expect to sign such an agreement when obtaining funds from a financial institution, but they should also consider writing a personal loan contract when giving money to friends or family.

Table of contents


What is a loan agreement?

A loan agreement is an informal contract that describes the terms of a loan and can be used as proof of a debt for money or other things lent.
If a big sum of money is involved, you may want to seek security or collateral on the loan and expressly state this in the loan agreement. For example, if your friend is declared bankrupt, you may try to claim his assets as repayment. If this is something you want to do, please consult with a lawyer, especially since securities can be extremely involved. Even if it is informal, you should take steps to make it professional by covering all of the important facts. The following information should be recorded on the document.

➤ Your name
➤ The name of the person(s) who received the loan
➤ The amount of money lent or objects loaned
➤ When the money or items should be returned
➤ Is there any interest charged, and if so, how much?
➤ Signatures of each party - Signatures of each witness

While it may appear that drafting a loan agreement is simple, it is crucial to note that important aspects can easily be overlooked, making recovering the debt more difficult if the situation becomes complicated.

Failure to repay debts, especially large ones, can be an embarrassing subject even among the closest of friends. To avoid any future complications in reclaiming what you lent out, you should constantly keep track of who the borrower is and where you may file any future claims. A simple loan agreement is one option to consider when lending money to friends or family members.

How can a loan agreement help?

Unfortunately, we have encountered many situations of debt recovery where a buddy lent money to another friend, who then failed to meet the agreed-upon terms. In these cases, it is customary to send a letter of demand to the debtor, requesting quick payment of the obligation.
A well-drafted loan agreement that clearly spells out what was agreed upon and is signed by both parties and witnesses serves as an excellent starting point for initiating a debt collection process.

Can I charge interest on the debt in Singapore?

You can charge your friend interest as long as you follow these requirements.
You must demonstrate that you do not operate an unlicensed money lending business. Unlicensed money lending is outlawed under the Moneylenders Act (Cap 188), and section 3 of the Act specifies that “any person who lends a quantity of money in consideration of a bigger sum being repaid must be deemed to be a moneylender, until the opposite is shown.”
It is also critical that you, the lender, and the borrower, agree on the amount of interest to be paid. This should be included in the loan agreement to ensure that the borrower is informed of the amount of interest that will be paid.
Such limits would not apply to you because the Moneylenders Act and Moneylenders Rules 2009 only establish the maximum chargeable interest for licensed moneylenders. As a result, the amount of interest is at your and your borrower’s decision.

How long can I use a loan agreement as evidence of a debt?

A loan agreement can only be used within six years of the occurrence of a cause of action, or grounds for you to launch your lawsuit. Essentially:

➤ If a repayment date is set and the debt is not paid by that day, you must file a claim within six years of the specified date
➤ If no repayment date is specified, the six-year time limit will begin when there is a cause of action

In the second scenario, there may be some dispute as to what constitutes a cause of action. If you are unsure, consult a lawyer to decide when the six-year time restriction begins.

What is a promissory note?

A promissory note is a more formal document that specifies the loan’s terms. It includes the amount lent and the debtor’s identification, just like a loan agreement, but it goes a step farther. It would normally include the following information:

➤ Action(s) required for debt payback
➤ Any duty imposed on the borrower
➤ Any repercussions if the borrower fails to repay

If you believe that specifying these parameters in advance would be preferable, it is best to consult a lawyer about what is feasible and advised when drafting a promissory note.

Can I sue them and make them bankrupt?

If the person is an individual rather than a corporation and loans S$15,000.00 or more, you may be allowed to file for bankruptcy. However, this is an extreme option that should be considered only in severe cases where the debtor is just unwilling to settle the obligation but still has money and assets in their name.

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