It is not an uncommon event that, due to certain pressing circumstances, a person will be asked to lend money (sometimes a large amount!) to a friend or relative in need. And whilst it is advisable to document the loan in writing for the protection of the lender, due to the urgency of the situation or because there is a perceived level of trust between the parties, there is only an oral arrangement. But what if things go wrong and there is a dispute?
Examples of disputes concerning a loan, in the absence of a written loan agreement, include a denial by the borrower that the money was ever lent or a claim that the money was given as a gift. How can these assertions be overcome? If the matter ends up in a Court, the burden would be on the lender to prove on the balance of probabilities that:
* there is an offer and an acceptance between the parties;
* there is consideration (something of value) exchanged between the parties
such as a promise to advance money in return for a promise to repay it
with interest; and
* there is a mutual intention to create legal relations meaning that they
intend for the agreement to be legally binding.
In Court the lender will have to rely on evidence of oral conversations between the parties to establish the loan agreement which will almost certainly be disputed. Apart from that, the legal costs will be substantial. The whole process is a challenge to say the least!
The clear lesson is when lending money to friends or relatives, the loan should be documented with all relevant terms, signed by the parties and dated. A lawyer can help you by preparing a simple loan agreement at minimal expense. It may well be worth it!
April 2026