When does the timer start for repayment of a loan agreement?

When advising those that intend on loaning money to another individual or company, we would always recommend the use of a formal loan agreement; a loan agreement really can make the difference!

A loan agreement should set out all of the repayment terms of the loan, and amongst other details, it should include:

  • Specific dates on which repayments are due;
  • Details on the sums that are due;
  • The method of repayment; and
  • Any interest that has been agreed between the contracting parties.

This is the recommended course of action in an ideal world. However, you may find yourself without a loan agreement, or one that is effective, and you’re still owed money. Don’t worry, we can help you.

In England and Wales, the Limitation Act 1980 outlines the rules on how long you have to take action to recover a debt owed to you. The limitation period for most standard debts is six years and the timer starts when the debt becomes outstanding and it stops when the claim is issued at court. Section 5 of the Limitation Act 1980 confirms that:

an action founded on simple contract shall not be brought after the expiration of six years from the date on which the cause of action accrued.

In the absence of an agreement, or one that provides for a repayment of the loan on or before a determinable date and which does not make the requirement to repay the loan amount qualified upon a demand for repayment, you will need to rely upon Section 6 of The Limitation Act 1980 in order to determine the limitation period. In this scenario, the six year period would start to run from the demand for repayment of the debt. Section 6 states that:

Where a demand in writing for repayment of the debt under a contract of loan to which this section applies is made by or on behalf of the creditor (or, where there are joint creditors, by or on behalf of any one of them) section 5 of this Act shall thereupon apply as if the cause of action to recover the debt had accrued on the date on which the demand was made.”

If these time limits are missed, then the debtor/defendant will have an automatic defence to any debt recovery claim that you issue: acting fast is therefore  crucial to the success of your recovery.

Should you need any advice in respect of a debt you are owed, please contact our commercial litigation team here.


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