Family Loan Agreement in Canada: The Complete Guide (2026)

A family loan agreement is a short written contract for money you lend a relative or friend: how much, how and when it's repaid, whether interest applies, and what happens if payments stop. In Canada it's binding once you both sign — no lawyer or notary needed, and e-signatures count. What sinks these agreements is usually a quiet drafting mistake.

Putting the loan in writing heads off most family money trouble before it starts. This guide explains what a family loan agreement is, what it needs to be valid in Canada, the quiet mistakes that make agreements unenforceable, and how to create one without hiring a lawyer.

What a family loan agreement actually is

It's an ordinary contract between a lender and a borrower who happen to know each other. It records the amount, the repayment plan, whether interest applies, and what happens if payments stop. It doesn't need special legal language — it needs clear terms, two parties with legal capacity, and signatures. What it changes isn't the law but the conversation: "I thought it was a gift," "we never set a date," and "that's not what we agreed" all disappear once it's written down.

What it must include

• The legal names of both people
• The amount and the date the money changes hands
• The repayment schedule — lump sum, instalments, or a flexible deadline
• The interest rate, if any, written as a clear annual rate (see below)
• What counts as default, and what happens then
• The governing province

The four mistakes that sink Canadian agreements

1. Stating interest the wrong way

Under the federal Interest Act, if you express interest for a period shorter than a year — "2% per month," say — without also stating the equivalent annual rate, your recovery can be capped at just 5% per year, no matter what you intended. One drafting slip quietly rewrites the deal.

2. Going over the criminal rate

Since January 1, 2025, Canada's criminal interest rate is any annual percentage rate (APR) above 35% on a loan to an individual, whatever the amount (the old ceiling was much higher and measured differently). Fees and penalties count as interest too. A clause above that isn't just unenforceable — it's a Criminal Code problem.

3. Signing with someone underage

The age of majority is 18 in Alberta, Manitoba, Ontario, PEI, Quebec, and Saskatchewan, and 19 in BC, New Brunswick, Newfoundland & Labrador, Nova Scotia, and the territories. Contracts with minors are generally voidable by the minor.

4. Using a promissory note when you meant a loan agreement

Many free "IOU" templates are actually promissory notes, which fall under the federal Bills of Exchange Act. The provincial e-signature laws exclude negotiable instruments like these, so an e-signed note stands on less certain ground (courts have accepted some anyway, but you don't want to rely on that). If you want to sign electronically, a two-party loan agreement is the cleaner choice.

Are e-signatures valid for this?

Yes. Electronic signatures are recognized in every province and territory for ordinary contracts, under each one's own electronic-commerce law — Ontario's Electronic Commerce Act, 2000, for example — mostly modelled on the national Uniform Electronic Commerce Act (Quebec has its own framework). What gives an e-signature weight if it's ever challenged is the evidence around it: timestamps and proof the document wasn't altered after signing. That's why the signing certificate matters more than the signature image itself.

What if they don't pay?

A signed agreement is exactly the evidence small claims court is designed around — and small claims covers almost every family loan in Canada: up to $50,000 in Ontario (since October 2025), $100,000 in Alberta, $50,000 in Saskatchewan, and $15,000–$35,000 elsewhere. Most provinces let you file without a lawyer. Watch the limitation clock, though: in Ontario and most other provinces, you generally have two years from discovering the default to start a claim (six years in PEI, Newfoundland and Labrador and the territories). A signed written acknowledgment of the debt, or a part payment, restarts the clock.

Gift or loan? Decide on purpose

Canada has no general gift tax, but the distinction still matters: mortgage lenders treat gifted and borrowed down payments differently, and in a relationship breakdown, money documented as a loan to your child can be treated very differently from an undocumented transfer. Decide which one you mean — and put it in writing.

Validity is one thing; proving the copy you hold is the one that was signed is another. LendRight seals every agreement with a verifiable SHA-256 fingerprint — document integrity and the SHA-256 seal.

Common questions

This article is general information for Canada, not legal advice. For complex situations, consult a licensed lawyer in your province.