Your Friend Borrowed Money and Won't Pay It Back. Here's What Nepali Law Actually Says.

It usually starts the same way. A friend needs cash  rent, a hospital bill, a business that's about to fall through  and you help out because that's what friends do. No lawyer in the room. No stamped paper. Maybe just a text message that says "I'll pay you back next month."

Then next month comes and goes. So does the one after that.

If you've been there, you already know the awkward math that follows: Do you bring it up again and risk the friendship? Do you let it go and quietly resent them? And underneath both of those questions is a third one most people never think to ask: do you actually have any legal ground to stand on if it comes to that?

Turns out, you probably do. Nepal's National Civil (Code) Act, 2017 (2074) lays out a detailed set of rules for exactly this kind of situation, in Chapter 15, Sections 474 through 492. It's not written for banks or big institutions  it's written for ordinary lending between ordinary people, and it answers almost every question that comes up when a personal loan goes sideways: what counts as a loan in the eyes of the law, how much interest is legal, what happens if you never wrote anything down, and how long you actually have to do something about it before your claim expires.

First  Does the Law Even Recognize an Informal Loan?

Yes, and this is the part most people get wrong. You don't need a notarized contract for the law to take your side.

Under Section 474, the moment one person hands over money or goods to another under some condition  say, "I'll pay you back"  that's a legally recognized transaction, and the person who received it is obligated to return it. Section 475 goes even further: if someone owes you money or goods in any form, the law treats that debt as a loan, whether or not either of you ever called it that out loud.

In other words, the informality of the arrangement doesn't get your friend off the hook. "We never signed anything" is not the legal shield people think it is.

But Please, Get Something in Writing

That said, the law strongly nudges you toward documentation  and for good reason. Section 476 says transactions are supposed to be backed by a deed, but don't let the word "deed" scare you off. It's defined broadly enough to include a check, a bill, a voucher, or a receipt. You don't need a lawyer's letterhead. You need a paper trail.

Section 477 spells out what a proper loan document should include: who's involved, why the money changed hands, how much, when it's due back, whether interest applies, and where and when the agreement was made. It can even state that the lender has the right to recover the debt from the borrower's assets if they don't pay up on time.

The difference between "I owe you five lakh rupees" scrawled on a napkin and a document that actually spells out the terms can be the difference between winning and losing a case later.

Didn't Write Anything Down? You May Still Have a Case

This is the provision that should make a lot of people breathe easier. Section 488 covers exactly the situation most private loans fall into: no formal deed was ever signed.

If the loan can still be shown through other evidence such as a bank transfer, a check, a voucher, an account book, anything that documents the transaction, courts are allowed to rely on that and order the money returned. So a bank transfer with no accompanying agreement isn't worthless. It's your best friend if this ever goes to court.

One caveat worth being honest about: the law doesn't say any transfer automatically proves a loan happened. A judge still has to be convinced the money was actually lent, not gifted or paid for something else. But the door is open, and that's more than most people assume.

Can You Charge Interest? Yes  But There's a Ceiling

If you want to charge interest, the agreement has to actually say so. Section 479 is blunt about it: no mention of interest in the deed means no interest, period.

Where interest is allowed, Section 478 caps it at 10 percent per year. If the agreement says interest applies but never specifies a rate, the law defaults to that same 10 percent. And compounding interest on top of interest is explicitly banned under Section 480  if a lender tries to collect it anyway, that amount gets subtracted from the principal, or refunded if the principal's already been paid off. Section 481 adds one more guardrail: total interest collected can never exceed the original amount borrowed.

Translation: Nepali law lets you charge a lender's fair share, but it's not going to let anyone turn a personal loan into a debt trap.

Paid It Back? Get That in Writing Too

Documentation shouldn't stop the moment the money changes hands; it should follow the loan all the way to the finish line. Section 482 requires the lender to sign off on the original deed once it's repaid, or issue a receipt if the original document can't be found. Partial payments are supposed to be recorded the same way.

Skip this step and you're setting up round two of the same argument, except now it's about whether you paid at all.

The Clock Is Ticking  Don't Wait Too Long

Here's the part that trips people up the most: patience has a legal expiration date.

Section 492 sets a general limitation period of one year  either from the repayment deadline stated in the loan document, or from whenever the right to collect first arose if there was no set deadline. Miss that window, and "I kept giving them chances" won't save your case.

There are exceptions. Section 492 also says there's no time limit at all for recovering unlawfully compounded interest, interest above the 10 percent cap, or certain transactions involving people who legally can't fully manage their own property. So the one-year rule isn't absolute  but it's the rule you should assume applies unless you have a specific reason to think otherwise.

The Real Takeaway

None of this is about assuming the worst of the people you lend money to. It's closer to wearing a seatbelt  not because you expect the crash, but because you'd rather have it if one happens.

A loan document doesn't say "I don't trust you." It says "let's both remember this the same way in six months." It protects the lender by proving what was given and when it was due. It protects the borrower too, by pinning down the exact amount owed, any interest that applies, and eventually, proof that the debt was settled.

Nepal's Civil Code isn't asking you to choose between friendship and paperwork. It's telling you that you can have both  and that the paperwork is what's still standing if the friendship, or at least the trust, ever wears thin.

Conclusion

Money and friendship have always been an uneasy mix, and no law is going to change that, but what the Civil Code does change is what happens after things go wrong the outcome of a broken promise doesn't have to come down to who remembers the conversation better or who's willing to fight louder, because there's an actual framework in place for what counts as a loan, how it should be documented, what interest is fair, and how long you have to act before that right disappears. So the next time someone asks to borrow a meaningful amount of money, the most caring thing you can do isn't skipping the paperwork to prove you trust them  it's writing it down, so that trust never has to be the only thing holding the deal together.

This article is based on Sections 474–482, 484, 488, 489, and 492 of Nepal's National Civil (Code) Act, 2017 (2074), Chapter 15. It is intended as general legal information, not legal advice. Anyone facing an actual dispute should consult a lawyer familiar with their specific circumstances.