In short
A sound private loan has two documents doing two different jobs: the loan agreement, which records the debt, and the security document, which records what stands behind it. They are separate instruments and one does not imply the other.
Where the National Credit Act applies, what you may charge is a closed list, and you cannot draft around any of it: a clause purporting to waive or deprive a borrower of a right set out in the Act is unlawful. The third document is the one nobody prepares — the record of what was shown, said and sent.
01Two documents, two jobs
| The loan agreement | The security document | |
|---|---|---|
| What it does | Creates the debt and sets its terms | Gives you a route to an asset or a person |
| Who signs | Lender and borrower | Borrower, or a third party such as a surety |
| Where it lives | With the parties | Often at the Deeds Office, registered |
| Without it | There is no enforceable loan | You are an unsecured lender |
A loan agreement that mentions security does not create security. A bond that is signed but unregistered does not secure anything yet. Lesson eight made that point about timing; this is the documentary version of it.
02What a sound agreement records
Nothing exotic. The failures are almost always omissions, not bad drafting.
- The parties, in full. Registration numbers for companies, identity details held privately, and the capacity in which each person signs.
- The amount, and when and how it is advanced. One figure, or a drawdown mechanism that says who may call for money and on what conditions.
- The rate, and whether it is fixed or linked to a reference rate. If linked, to what, and when it resets.
- Repayment, in the terms of lesson six: what happens to interest while it runs, and what brings the capital back. If it is event-driven, the event has to be defined.
- What counts as default, and whether there is a grace period.
- What happens on default — acceleration, default interest, costs, and the notice you must give before acting.
- The security, identified, with who registers it and when.
- Governing law and jurisdiction, and how notices are validly given. Boring until the day it matters, and then decisive.
The Association publishes a longer treatment of each of those, and it is attached below as further reading once it is live. Neither it nor this lesson is a template, and neither replaces having the document drawn properly.
03What you may charge, where the Act applies
Section 101(1) is a closed list. A credit agreement must not require the borrower to pay anything except the items on it:
- the principal debt
- an initiation fee
- a service fee
- interest
- credit insurance
- default administration charges
- collection costs
Anything else may not be charged. Most of the items are capped by regulation, and several carry their own conditions — an initiation fee may not be charged unless the application results in an agreement, for example.
04The clause that cannot be written
A credit agreement must not contain an unlawful provision. A provision is unlawful if it purports to waive or deprive a borrower of a right set out in the Act.
So a clause by which the borrower agrees to give up a statutory protection is of no force, whatever the borrower signed and however clearly it was explained. This is worth understanding properly rather than resenting:
- It means a well-drafted agreement cannot rescue a loan the Act governs from the Act's requirements.
- It means the question does the Act apply? is a real question with real consequences, and not a matter of drafting.
- It means an arrangement whose protection depends on a waiver clause has no protection.
05The document nobody prepares
Keep the record. Not the agreement — the trail around it: what was shown to you, what was said, what you sent, and when.
- The valuation, and who commissioned it.
- The Deeds Office search, dated.
- The rates and levy confirmations.
- Emails and messages in which terms were discussed, kept as sent rather than summarised later.
- Proof of what you paid, from which account, to which account.
- Every notice you gave, and how you gave it.
A disputed conversation two years later has to be reconstructable. The lender who kept the trail is in a different position from the lender who remembers it clearly — and the second one is usually certain, which is not the same thing.
That closes part two. Part three: the four ways this loses money.