Gifts and private loans

A private loan is an agreement between the person lending the money and the person borrowing the money on the condition that the loan will be repaid by a specific date or event. A private loan is different to a loan from a bank or other credit provider. A private loan is more flexible than borrowing money from a bank as the terms can be negotiated between the parties. However, disputes can arise if the person borrowing the money cannot afford to repay the debt. 

A private loan agreement can be made in writing or verbally. A written loan agreement is a contract between the person lending the money and the person borrowing the money.

A written loan agreement should include details of: 

• ​the full names and addresses of the parties
  
• the principal amount of the loan
  
• the term of the loan, for example 12 months
  
• the amount and frequency of repayments
  
• the rate of interest payable, if interest is being charged.
  

You should get legal advice before you lend money to someone. It is a good idea to think about whether the borrower can pay you back, how they will pay you back and what happens if they can't pay you back.

If the borrower owns real estate, the lender can register a written loan agreement with the NSW Land Registry Services (NSW LRS) as a mortgage or caveat. You should get legal advice​ before you register a loan agreement with NSW LRS. 

If you have a private loan agreement with a family member, you should keep a record of the payments to avoid a dispute. For example, if payments are made by bank transfer, keep a copy of your bank statement showing the transaction. You should avoid payments in cash unless a written receipt is provided.

If you have a dispute with a family member or friend about a private loan agreement, you should first try to resolve your dispute through negotiation or mediation at a Community Justice Centre​. For more information, see Resolving your dispute. 

Sometimes there can be a disagreement between family members about whether the money was meant to be a gift or a loan. Loans between family members are often informal, not recorded in writing, and are based on trust. When family members give money to each other it is generally considered to be a gift, unless there is strong evidence to show that it was a loan.

Unless an agreement is made or confirmed in writing, it can be very difficult to prove the intention of the person giving the money and whether it was meant to be a gift or a loan.

If there is a disagreement about whether the money was meant to be a gift or a loan, you should first discuss the issue with the other person and get legal advice. You can try to resolve your dispute through negotiation or mediation at a Community Justice Centre. For more information, see Resolving your dispute.

Giving or receivi​ng money may affect a person's Centrelink benefits. You should contact Centrelink or get legal advice. 

If someone owes you money, see Making a claim. If someone is chasing you for money, see Responding to a claim.​