Personal Loan Agreement between Friends Canada

Personal Loan Agreement Between Friends in Canada: Things to Consider

Borrowing or lending money from a friend can seem like a good idea at the time, especially when you need some quick cash for an emergency. However, it is important to protect the relationship by formalizing the agreement with a written document known as a personal loan agreement. In Canada, there are specific rules and regulations that govern financial transactions between individuals. This article will explore the key considerations when creating a personal loan agreement between friends in Canada.

The Purpose of a Personal Loan Agreement

A personal loan agreement is a legally binding document that outlines the terms and conditions of a loan between two parties. It is used to protect the interests of both the borrower and the lender. The agreement typically includes details such as the loan amount, repayment schedule, interest rate, and late payment penalties.

In Canada, personal loans between friends are not regulated by federal law or subject to any specific licensing requirements. However, the Canada Revenue Agency (CRA) may view such loans as taxable income if interest is charged. Therefore, it is important to carefully consider the terms of the loan and document them in writing.

Key Considerations for a Personal Loan Agreement

1. Loan Amount and Repayment Schedule

The first consideration in a personal loan agreement is the amount of money being lent and the repayment schedule. It is important to agree on a specific amount and a timeline for repayment before the loan is disbursed. This will help to avoid any misunderstandings or confusion in the future.

2. Interest Rate

If the loan includes an interest rate, it must be fair and reasonable. According to the CRA, interest rates charged on personal loans must be comparable to commercial rates offered by financial institutions. To avoid any complications, it is advisable to avoid charging interest on a personal loan between friends.

3. Late Payment Penalties

In case of late payments, the agreement should specify the amount of penalty to be charged. It should also state the grace period before the penalty is charged, which is usually 30 days or less.

4. Collateral

Collateral is any property or asset that a borrower pledges to a lender as security for the loan. In the case of a personal loan between friends, it may not be necessary to seek collateral. However, if collateral is being offered, it should be clearly described in the agreement.

5. Legal Advice

It is advisable to consult a lawyer before drafting a personal loan agreement. A lawyer can help to ensure that the agreement is legally binding and enforceable in a court of law.


A personal loan agreement between friends in Canada is a useful tool for ensuring that financial transactions are transparent, fair, and legally binding. It is important to agree on all terms and conditions before the loan is disbursed, and to document them in writing. A written agreement can help to protect the friendship and avoid misunderstandings in the future.

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