Free Loan Agreement Template

What a Loan Agreement Is and Who Needs One

A loan agreement is a legally binding contract that documents the terms under which one party (the lender) lends money to another party (the borrower). It records the principal amount, the interest rate (if any), the repayment schedule, and what happens in the event of late payment or default. Both parties sign to confirm they understand and accept the terms.

Loan agreements are most commonly used for personal loans between individuals, such as loans between family members or friends, and for small business loans where a formal bank is not involved. A written agreement protects the lender by creating a legal record of the debt and protects the borrower by establishing agreed-upon terms that cannot be changed unilaterally.

• Family members lending money to a relative for a car, down payment, home repair, or business startup
• Friends formalizing a loan to avoid ambiguity about whether the money is a loan or a gift
• Business owners borrowing from a private investor or business partner
• Individuals lending money to an acquaintance and wanting legal recourse if the debt is not repaid
• Any loan where one party wants a written record for tax purposes, particularly when charging interest

Key Clauses in a Loan Agreement Template

A complete loan agreement covers the essential financial terms and the remedies available to the lender if the borrower does not pay. Leaving any of these provisions vague or undefined creates gaps that courts will have to fill in, often in ways neither party anticipated.

• Principal amount: the total sum being lent, stated clearly as a dollar figure
• Interest rate: the annual percentage rate (APR) on the outstanding balance, or an explicit statement that the loan bears no interest
• Repayment schedule: the due date for a lump sum repayment, or the amount and frequency of installment payments and the date the final payment is due
• Payment method: how payments will be made (check, bank transfer, cash) and where they will be sent
• Late payment fee: the dollar amount or percentage charged when a payment is made after the due date
• Default clause: a definition of what constitutes default and what happens next, typically the right of the lender to demand the full remaining balance immediately
• Prepayment: whether the borrower can pay off the loan early without penalty
• Collateral: a description of any property the borrower pledges as security for the loan, and the lender's rights if the borrower defaults
• Governing law: which state's laws govern the agreement and where disputes would be resolved

How to Complete a Loan Agreement Template

Both parties should agree on all terms before either one signs. A loan agreement signed under pressure or without full understanding of the terms is a common source of disputes.

1. Enter both parties' full legal names and addresses at the top of the agreement. Use the same names as on government-issued IDs to avoid ambiguity if the document is ever used in court.
2. Specify the principal amount: the exact dollar amount being lent. Write it out in both numbers and words to prevent alteration.
3. Decide on interest. A family or friend loan may carry no interest. If you do charge interest, note that the IRS requires loans above certain thresholds to charge at least the Applicable Federal Rate (AFR) to avoid imputed interest rules; consult a tax professional if relevant.
4. Write out the repayment schedule in detail. For installment loans, list the payment amount, frequency, start date, and final payment date. For a lump sum loan, list the single due date.
5. Include a late fee provision. A specific dollar amount is simpler to enforce than a percentage, but either works.
6. Define default clearly. The most common triggers are a payment overdue by a set number of days and the borrower filing for bankruptcy.
7. If the loan is secured by collateral (a vehicle, real estate, or other property), describe the collateral specifically and clarify the lender's rights to take possession if the borrower defaults. Note that perfecting a security interest in certain types of collateral may require filing with a state agency.
8. Both parties sign and date the agreement. Notarization is not always required but adds an additional layer of enforceability.

Personal Loan Agreement Template: Family and Friend Loans

A personal loan agreement template is used when an individual lends money to another individual, most often a family member or friend. These loans are common, but they are also frequently the source of relationship-damaging disputes because the terms were never written down.

Even for small loans between people who trust each other, a simple written agreement creates clarity about whether the money is a loan or a gift, when repayment is expected, and whether interest is being charged. Having this in writing from the start protects the relationship by eliminating misremembering and misunderstandings about what was agreed to.

• State explicitly whether the transfer is a loan (to be repaid) or a gift (not to be repaid); ambiguity on this point causes more family disputes than any other aspect of personal loans
• For family loans, decide upfront whether interest will be charged; the IRS has minimum interest rate rules (AFR) for loans above a threshold that affect how the loan is treated for tax purposes
• A promissory note (a simpler one-page promise to repay) may be sufficient for small, straightforward personal loans; a full loan agreement is better for larger amounts or more complex terms
• Keep a record of each payment made, either via a payment log attached to the agreement or through a traceable payment method like a bank transfer

Payment Agreement Template vs. Promissory Note vs. Loan Agreement

Three related documents are commonly used for loans and payment arrangements, and they serve slightly different purposes.

• Loan agreement template: the most comprehensive document; covers all terms including default remedies, collateral, and governing law; used for larger or more complex loans
• Promissory note: a simpler one-page document in which the borrower promises to repay a specific sum; typically used for straightforward loans where the full terms are agreed upon verbally and only the repayment promise needs to be in writing
• Payment agreement template: documents an agreement to pay a debt that already exists, often used when a creditor allows a debtor to pay off an overdue balance in installments rather than all at once

Legal Disclaimer

This loan agreement template is provided for general informational purposes only and does not constitute legal or tax advice. Laws governing loan agreements, interest rates, usury limits, security interests, and enforcement vary significantly by state, and the appropriate provisions for your specific situation depend on those laws. Charging interest above your state's usury limit may render the interest unenforceable. Tax rules governing interest on family and personal loans (including IRS Applicable Federal Rate requirements) can affect both the lender and the borrower. For loans involving significant amounts, secured collateral, or business entities, consult a licensed attorney and a tax professional before finalizing the agreement. GetTemplated is not a law firm, and use of this template does not create an attorney-client relationship.