What is a loan agreement?
Is a loan agreement enforceable in South Africa?
“Section 8(4)(f) defines a credit transaction to include any agreement “in terms of which payment of an amount owed by one person to another is deferred, and any charge, fee or interest is payable to the credit provider”. Where no charge, fee or interest is payable, the agreement is not a credit agreement and the lender’s non-registration does not render it unenforceable.”
“The Act applies to every credit agreement except, among others, one where the consumer is a juristic person whose asset value or annual turnover equals or exceeds the threshold (R1 million); a credit transaction includes a deferred-payment agreement on which a charge, fee or interest is payable; and a credit provider must be registered.”
“The in duplum rule provides that arrear interest ceases to accrue once the total of unpaid interest equals the outstanding capital; the running of the rule is, however, suspended once litigation to recover the debt has commenced.”
When you need a Loan
- You are lending money to a friend, family member, employee or business associate and want a clear, provable record of the amount, the repayment terms and whether interest is charged.
- A director or shareholder is advancing money to (or drawing money from) their own company, or one group company is lending to another, and the loan must be documented for the accounts, the company’s solvency and SARS.
- A business is raising or extending working-capital, bridging or shareholder funding and needs a written facility recording drawdown, interest, repayment and default events.
- You are formalising an existing informal advance — turning a verbal “I’ll pay you back” into an enforceable agreement, often alongside security such as a suretyship, cession or mortgage bond.
- A lender that charges interest or fees needs to confirm whether the National Credit Act applies and, if so, whether it must register as a credit provider and meet the Act’s disclosure and affordability requirements.
What a Loan should contain
Loan amount, drawdown and purpose
State the exact capital advanced (and the currency), whether it is paid as a single lump sum or drawn down in tranches, and the date(s) of advance. Recording the purpose of the loan helps prove it was a loan and not a gift, donation or disguised distribution.
Interest rate (or confirmation it is interest-free)
Specify the rate, how it is calculated (e.g. linked to the prime or repo rate), and when it is compounded. Whether interest is charged is decisive for the National Credit Act: a genuinely interest-free, fee-free loan generally falls outside it (Nel v Cilliers), while charging interest can pull the loan into the Act.
Repayment terms and schedule
Set out when and how the loan is repaid — instalments, a bullet (single) repayment, or repayment “on demand”. A repayable-on-demand loan affects when prescription starts to run, so the trigger for repayment should be precise.
Default, acceleration and breach
Define events of default (missed payment, insolvency, breach), any notice or cure period, and the lender’s right to “accelerate” — to call up the full balance immediately. NCA-regulated agreements must follow the section 129 notice process before legal steps.
In duplum and default interest
Address interest after default. Under the in duplum rule, arrear interest stops running once it equals the outstanding capital (Standard Bank v Oneanate; widened by NCA section 103(5) to cover all fees and charges combined). A clause that purports to charge unlimited default interest will not override this cap.
Security and suretyship
Record any security backing the loan — a suretyship by a director, a cession of book debts or shares, a pledge, or a mortgage/notarial bond. Remember a suretyship must be in writing and signed to be valid under the General Law Amendment Act 50 of 1956.
Acknowledgement and prescription
Include a clear acknowledgement of the debt and consider how prescription is managed. An ordinary loan debt prescribes after three years; a debtor’s written or tacit acknowledgement of liability interrupts prescription and restarts the clock (Prescription Act 68 of 1969, s 14).
Whole agreement, variation and consent
A non-variation clause requiring changes to be in writing and signed protects both sides. For director/shareholder and inter-company loans, confirm the necessary board or shareholder approvals and that the loan does not offend the financial-assistance or distribution rules in the Companies Act.
Loan agreement vs acknowledgement of debt in South African law
| Feature | Loan agreement | Acknowledgement of debt (AOD) |
|---|---|---|
| What it does | Creates the loan: lender advances capital, borrower agrees to repay | Confirms an existing debt already owed and records terms to repay it |
| Typical timing | Signed when (or before) the money is advanced | Signed after the debt has arisen, often to settle or restructure it |
| Effect on prescription | Three-year clock runs from when repayment is due | Signing it is an acknowledgement that interrupts and restarts prescription (s 14) |
| National Credit Act | Regulated if a charge, fee or interest is payable and no exemption applies | Falls outside the NCA where the underlying debt is itself unregulated (Ratlou v MAN) |
| Common use | Friendly loans, shareholder/inter-company loans, facilities | Formalising a debt, settlement of a dispute, payment plans |
Common South African pitfalls
- Charging interest without checking the National Credit Act. The moment a fee or interest is payable, a loan can become a regulated credit agreement — and a lender that should have registered as a credit provider (the registration threshold has been R0 since November 2016) risks the agreement being declared void, recovering only the capital and not the interest.
- Assuming a “friendly loan” is always safe from the NCA. An interest-free loan is generally outside the Act (Nel v Cilliers), but if you add interest, fees or a series of loans, or routinely lend at a profit, the Act and registration obligations can be triggered.
- Letting the debt prescribe. An ordinary loan prescribes after three years from when repayment is due. Many lenders sit on “on demand” loans and lose the right to claim — get a fresh written acknowledgement or issue summons before three years run out.
- Trying to contract out of the in duplum rule. A clause charging default interest beyond the outstanding capital is unenforceable once arrear interest equals the capital. Lenders frequently over-claim interest that the in duplum rule (and NCA s 103(5)) does not allow.
- Documenting shareholder and inter-company loans poorly. Undocumented director/shareholder loans cause disputes, tax problems (deemed distributions, dividends tax) and can fall foul of the Companies Act financial-assistance and solvency rules. Record the terms, interest and approvals.
- Relying on a purely verbal loan. A loan need not be in writing to be valid, but proving the amount and terms of an oral loan is hard — and if it is later challenged as a gift or donation, the lender carries the risk. Always put it in writing.
Frequently asked questions
Does a loan agreement have to be in writing in South Africa?
No. A loan agreement is valid even if it is only verbal, because there is no general statutory writing requirement for an ordinary loan of money. However, writing is strongly recommended: it proves the amount, the interest and the repayment terms, and prevents a dispute about whether the money was a loan or a gift.
Is a loan agreement enforceable in South Africa?
Yes. A loan agreement is enforceable as an ordinary contract once the parties agree that money is advanced and must be repaid. The main risk to enforceability is the National Credit Act: if the Act applies and the lender has not complied (for example, by not registering as a credit provider), a court can declare the agreement void.
Does the National Credit Act apply to a loan between friends or family?
Usually not, if the loan is genuinely interest-free and fee-free. Under section 8(4)(f) of the National Credit Act, a deferred-payment loan is only a regulated credit agreement if a charge, fee or interest is payable. In Nel v Cilliers [2024] ZASCA 57 the Supreme Court of Appeal confirmed that with no charge, fee or interest, the loan is not a credit agreement.
Does the National Credit Act apply to a loan to a company?
Not always. The Act does not apply where the borrower is a juristic person whose asset value or annual turnover is R1 million or more (section 4(1)), nor to a “large agreement” — a loan with a principal debt of R250 000 or more — made to a smaller company. Loans to natural persons and small companies charging interest are generally regulated.
What is the in duplum rule on a loan?
The in duplum rule caps interest: once unpaid (arrear) interest equals the outstanding capital, no further interest accrues while the debtor remains in default. It is a common-law rule confirmed in Standard Bank v Oneanate and, for regulated credit agreements, widened by section 103(5) of the National Credit Act to cap all fees, charges and interest combined at the outstanding balance.
How long do I have to claim repayment of a loan before it prescribes?
An ordinary loan debt prescribes (becomes unenforceable) three years after the debt becomes due, under the Prescription Act 68 of 1969. The clock can be interrupted — for example, by the debtor acknowledging the debt in writing, or by serving summons — after which it starts running afresh. Mortgage-secured debts have a longer 30-year period.
What is the difference between a loan agreement and an acknowledgement of debt?
A loan agreement creates the loan — the lender advances money and the borrower agrees to repay it. An acknowledgement of debt (AOD) confirms a debt that already exists and records how it will be repaid. An AOD is often signed after a loan or other debt has arisen, and signing it interrupts prescription, restarting the three-year clock.
Do I need to register as a credit provider to lend money?
If your loan is a credit agreement under the National Credit Act — broadly, where interest or a fee is charged and no exemption applies — then yes. Since November 2016 the registration threshold has been zero, so any person granting regulated credit must register with the National Credit Regulator. Lending without registering can render the agreement void.
Sources & authority
- National Credit Act 34 of 2005 (ss 4(1), 8(4)(f), 40, 103(5))
- Nel & Others v Cilliers (197/2023) [2024] ZASCA 57
- Standard Bank of SA Ltd v Oneanate Investments (Pty) Ltd (in liquidation) [1997] ZASCA 94; 1998 (1) SA 811 (SCA)
- Ratlou v MAN Financial Services SA (Pty) Ltd (1309/17) [2019] ZASCA 49; 2019 (5) SA 117 (SCA)
- Prescription Act 68 of 1969 (ss 11, 12 & 14)
This guide is general information, not legal advice. It reflects the law as at June 2026.