Loan Agreement & Promissory Note Generator

By the MuftTools.in teamUpdated October 2026How we checkSources: Income-tax Act, 2025, sections 185, 188, 450 and 453 (Income Tax Department), Negotiable Instruments Act, 1881, section 4 (India Code), Indian Contract Act, 1872, sections 126 to 128 (India Code)

Put a personal loan in writing

Lending money to a relative, friend or colleague is common in India, and so are the arguments that follow when nothing was written down. A short hand loan agreement (उधार इकरारनामा) records how much was given, when, how, and how it will be paid back. A promissory note (pronote) adds a signed, unconditional promise by the borrower to pay. This tool makes both from one form, so the names and amounts always match.

The agreement covers lump-sum repayment by a date, monthly instalments with a full repayment schedule, or repayment within a set number of days after the lender asks. It can be interest-free or carry interest, and you can add security, a guarantor, a court clause and your own terms. The promissory note is a one-page "payable on demand" note with a space for the revenue stamp. Both come in English or Hindi as PDF and Word files.

How to use it

1. Choose the document: loan agreement or promissory note. Switch at any time; the details stay.
2. Enter the lender and borrower with relation, age, address and, if you like, PAN. Add a guarantor if there is one.
3. Describe the loan: amount, date, how it was given (bank transfer, cheque or cash) with the UTR or cheque number, and the purpose.
4. Set the terms: interest rate (0 for none), repayment type, due date or instalments, the lender's account for repayments, security and the court city.
5. Add witnesses, check the preview, and download. Sign the agreement on stamp paper; sign the note across the revenue stamp.

Cash loans and the Income-tax Act

This is the rule people most often break without knowing it. Under section 185 of the Income-tax Act, 2025, no person may take or accept a loan or deposit of ₹20,000 or more from another person except by account payee cheque, account payee bank draft, electronic clearing through a bank account or another prescribed electronic mode. The limit counts the new loan together with any earlier loan from the same person that is still unpaid. Section 188 applies the same ₹20,000 limit to repaying a loan. The penalty under sections 450 and 453 can be equal to the amount taken or repaid.

So for most personal loans, transfer the money through the bank, write the UTR or cheque number in the agreement, and ask for repayments into the lender's bank account. The agreement's repayment clause already says so.

The promissory note

Section 4 of the Negotiable Instruments Act, 1881 defines a promissory note as an instrument in writing (not a bank-note or currency-note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. The Act's own examples show the difference: "I promise to pay B or order Rs. 500" is a promissory note, but "I promise to pay B Rs. 500 seven days after my marriage with C" is not, because it depends on an uncertain event.

This tool's note is payable on demand to the named lender or order, states the amount in figures and words, adds interest if you set a rate, and says the money was received. Leave space for the revenue stamp and sign across it. Ask a notary about the stamp needed for your note.

What the agreement covers

Clause	What it says
Loan given	Amount in figures and words, date, mode and reference; the borrower acknowledges receiving it
Interest	Interest-free, simple interest per year, or interest on the reducing balance built into instalments
Repayment	One payment by a date, monthly instalments from a first date, or within a number of days of a written demand
Payment method	Repayments by bank transfer or cheque to the lender's account, with acknowledgement
Prepayment	Allowed at any time without extra charge
Security and guarantor	Item handed over and returned on repayment; a guarantor who pays if the borrower defaults
Default	For instalments, the whole balance falls due after a set number of days of default; recovery through legal means
Schedule	Each instalment date, amount and balance, and the total to be paid

Guarantors

A guarantor signs as surety. Section 126 of the Indian Contract Act, 1872 defines a contract of guarantee as a contract to perform the promise, or discharge the liability, of a third person if that person defaults. Section 128 makes the surety's liability as large as the principal debtor's unless the contract says otherwise. A guarantor can therefore be asked to pay the whole unpaid amount with interest.

Tips

• Keep interest modest and check your state's money-lending law if you lend often or at a high rate.
• Pay through the bank and keep the statement with the agreement.
• Give the borrower a signed receipt or message for every repayment, and note it on your copy.
• Each party should keep one original, signed on every page.

This is a draft format, not legal advice. Stamp duty differs by state, so check with a lawyer or notary before signing, especially for large amounts. Nothing you type leaves your browser: no upload, no sign-up and no watermark.

Popular loan formats

• Promissory note format
• Loan agreement in Hindi