Loan Agreement Format and Online eSign

A loan agreement is a contract in which a lender gives money to a borrower and the borrower agrees to repay it on agreed terms. It records the amount, the interest rate (or that the loan is interest-free), the repayment schedule, what happens if a payment is missed, and any security or guarantee. It is a contract under the Indian Contract Act 1872 between the lender and the borrower.

Loan agreements are used well beyond banks. Friends and relatives lending money to each other use a simple loan agreement (often called a friendly loan agreement) so that everyone remembers the same terms. Founders lend money to their own companies, companies give loans or advances to employees, and small businesses borrow from individuals or other businesses. In each case a signed agreement is the main evidence of what was agreed if there is ever a dispute.

A loan agreement itself can be signed with Aadhaar eSign. Two points matter in India. First, a loan agreement attracts stamp duty under the Stamp Act of your state, usually based on the loan amount, so it should be executed on e-stamp paper of the right value. Second, a promissory note is a negotiable instrument, and negotiable instruments are excluded from electronic signing under Schedule I of the IT Act, so keep the agreement as an agreement and do not convert it into an eSigned promissory note. Lending money as a regular business may also need a licence under state money lending laws or RBI rules, which is separate from signing the document.