Loan agreement in Saudi Arabia: Template, Key Clauses and Local Law (2026)

What a loan agreement is in Saudi Arabia A loan agreement records money lent and how it is repaid. In Saudi Arabia the defining feature is Sharia. The courts apply Islamic law, and riba, which covers interest, is prohibited. A conventional interest clause is not reliably enforceable, and Saudi dispute bodies have historically been reluctant to enforce interest. This shapes how loans are written: either as a genuine Sharia compliant structure, or as a plain principal only loan secured by a promissory note. This does not mean money cannot be lent at a return. Licensed finance providers use Sharia compliant structures, such as murabaha or tawarruq, that produce a profit for the financier without charging interest. For a simple loan between a business and an individual, the safest route is a principal only loan with clear repayment and security. This page is general information, not legal advice. Saudi enforcement practice on interest, promissory notes and finance regulation is specialised, so confirm the live position with a Saudi lawyer before relying on any clause. ## What Saudi law requires - No riba. Interest is prohibited. A term that charges interest is at serious risk of being unenforceable in a Saudi court, and foreign judgments or awards that include interest can be cut back on enforcement.

• Sharia compliant alternatives. A return can be earned through recognised structures, such as a cost plus sale (murabaha) or a commodity arrangement (tawarruq), used by licensed providers under the supervision of the Saudi Central Bank (SAMA). These are sales or trade based, not interest.
• Promissory notes. A promissory note is a common and powerful security for a loan, enforceable through the enforcement courts. Recent practice has tightened, with authorities sometimes asking for evidence of the link between the note and the underlying finance, so document that link.
• Licensing. Lending as a business is regulated. Finance companies and banks need SAMA authorisation. A one off private loan is different from carrying on a lending business. ## The clauses that differ in Saudi Arabia - Return mechanism. State whether the loan is principal only, interest free, or a Sharia compliant financing structure. Do not insert a conventional interest rate and assume it holds.
• Promissory note. Consider taking a promissory note as security and reference it in the loan, keeping the connection clear.
• Governing law and language. Saudi law and Arabic govern. Keep an Arabic version and state the controlling language.
• Default. Set acceleration and recovery, but avoid default interest, which runs into the riba prohibition. ## A Saudi loan agreement template you can adapt ``` LOAN AGREEMENT (INTEREST FREE / SHARIA AWARE) Date: [date] Lender: [full name / company, CR or ID, address] Borrower: [full name / company, CR or ID, address] 1. LOAN The Lender lends the Borrower [amount in figures and words] SAR (the "Loan"). The Loan is interest free. [If a financing structure is used instead, describe the Sharia compliant structure here.] 2. PURPOSE The Loan is for [purpose]. 3. REPAYMENT The Borrower repays the principal by [lump sum on [date]] / [[number] instalments of [amount] on the [day] of each month from [date]] to [account]. 4. SECURITY The Loan is secured by [a promissory note of [amount] dated [date] / guarantee / none]. The promissory note relates to this Loan and the parties keep that link documented. 5. NO INTEREST No interest, late payment interest or other riba is charged. [Any agreed administrative charge must reflect a genuine cost, not disguised interest.] 6. DEFAULT If the Borrower misses a payment by [number] days or becomes insolvent, the outstanding principal becomes immediately due and the Lender may enforce the security. 7. EARLY REPAYMENT The Borrower may repay early at any time without penalty. 8. GOVERNING LAW AND DISPUTES Governed by the laws of Saudi Arabia. Disputes go to [the competent Saudi courts / enforcement court] / [arbitration seated in [city]]. The Arabic text prevails. SIGNED Lender ____________ Borrower ____________ Witness ____________

- Default or late payment interest, which runs straight into the riba prohibition.
- A promissory note with no documented link to the loan, now that authorities may ask for that link.
- Relabelling interest as a fee. A charge that is really interest can be challenged.
- Carrying on a lending business without SAMA authorisation. ## Before you sign Run three checks before you lend. First, confirm the return is structured as a genuine interest free loan or a recognised Sharia compliant financing, not interest with a new label. Second, decide whether to take a promissory note and keep its link to the loan documented. Third, agree how a default is handled without relying on default interest. These three choices decide whether a Saudi court will enforce the agreement as you expect. ## Keeping a loan and its security in step A loan does not end at signing. Instalments fall due, a promissory note sits as security, a borrower asks to vary the schedule, and a default sets off a chain of dates and enforcement steps. The work that outlasts the signing is keeping the current terms, the note, the repayment record and the key dates together, and knowing exactly which document to reach for the moment a payment is missed. That is the same problem a company has across its contracts, and a Sharia aware loan makes it concrete. Drafting from a clear template, spotting a term that will not hold under local law, editing a clause in plain language and holding every version with its date can live in one AI workspace tuned to how your company contracts. [Adira](https://adiralaw.com) is built around that single workspace idea, deepest today on Indian corporate law, with Saudi Arabia coverage on its roadmap rather than fully built, so treat its Saudi depth as developing. For this loan, the template and the local law points above stand on their own; the idea worth borrowing is that a contract and the security around it are easier to trust when they live in one place.