Free Loan Agreement Template

A loan is an agreement between two parties, whereby one individual or business (known as the lender) gives an amount of money to the other party (in this case known as the borrower).

This sum is then paid back over f weeks, months, or years. 

The loan amount is usually returned to the lender in regular installments and very often a percentage of interest is added to the original amount. A loan agreement is used by these parties to create a clear record of the sum of money that is being lent, the terms of repayment, and any interest that is being levied on the amount.   

A loan agreement can be known by the following alternate names:

• Promissory Note

• Term loan

• Personal Loan Agreement

• Loan Contract

• IOU

Different types of Loan Agreements can be used depending on your specific necessities. This sort of financial contract might be used for one of the following types of loan:

• Home equity loans: A loan that is secured against real estate property owned by the borrower; such as a house.  

• Business loans: These kinds of arrangements are used to help people secure funds to set up a new business venture or to invest in a pre-existing enterprise.

• Personal loan: A personal loan agreementallows a borrower and a lender who are family members or friends to outline the details of money being lent.

• Family loan agreement: A personal loan given by a member of your immediate family.

• Car loans: These are paid when the borrower wishes to purchase a new car or vehicle.

• Student loans: A student loan is used to allow a college or university learner to pay their tuition and living costs. 

• Federal Housing Administration (FHA) loans: This kind of loan is available to a borrower who wishes to buy a house but has a credit rating below 580.

• IOU: An IOU is an agreement made between a borrower and lender, it is known as a friendly loan agreement because it is informal, however, it can be used in court.

A Loan Agreement should be used by anyone preparing to lend money for any reason.

 These financial contracts protect lenders from possible defaults by setting out:

• Repayment schedules 

• Interest rates

• Consequences if the borrower cannot pay back the loan. 

It is legally enforceable should disputes arise and also creates a clear record of what was agreed at the start of the loan.

Loan Agreements also help borrowers too. They do this by fixing the repayment schedule and interest that must be paid back in writing. 

This allows the person who is paying back the loan to be fully aware of what they will have to pay back and when. It also prevents the borrower from being potentially exploited by predatory interest rates and sudden unwanted changes in the repayment terms.

There are a few important points to remember when you write a Loan Agreement. 

First, you must use clear and easy-to-understand language so that it is immediately obvious who is who in the agreement and how the money should be repaid. 

After all, a Loan Agreement is a legally enforceable contract, so it must be obvious to anyone reading it what the terms are and who the parties bound by it are. 

There should be no ambiguity at any stage, or it could lack the clout necessary to hold a breaching party to account.

To correctly include these elements in your Loan Agreement, you must include the following: 

1. Date of commencement: Include when the Loan Agreement will begin 

2. Parties: Enter the full names and complete addresses of both the Borrower and the Lender. 

3. Loan Amount: Include the amount of money the lender will loan to the Borrower. 

4. Terms and Conditions: Add how the loan will be paid back (single payment, installments), interest, collateral, late fees, prepayment, governing law, etc. 

5. Signatures: Sign the Loan Agreement with the other party, along with your names and date. 

Use our Loan Agreement template to follow these steps and correctly create your document. 

There are certain details that must appear in your Loan Agreement no matter what. Failure to include crucial information could lead to your final form proving ineffective when it is needed most.

The key contractual terms to remember in your loan agreement include the following:

• How much is being borrowed (sometimes referred to as the principal sum)

• When it should be paid back

• The amount of interest that is to be charged

• If any late fees or pre-payment penalties apply

• What should happen if the borrower defaults on the amount

When you complete a loan agreement with our expert, step-by-step instructions, and questionnaire, you will be prompted to provide these details.

This will help you make sure that your final document can perform as needed.

A Loan Agreement and Promissory Note are often compared or even mentioned interchangeably. 

While they are similar in certain aspects, the legal documents have some key differences. 

Check the table below to understand the similarities and differences between the two documents. 

Once a loan agreement has been finalized and the borrower has received the funds requested, they must follow the repayment schedule specified by the contract.

A borrower will often need to repay the loan in installments, usually paying either: 

• Monthly installments

• Weekly installments

However, this is not the only possibility open to lenders and borrowers.

If the amount is smaller, the loan agreement might stipulate that the principal has to be paid in a single lump sum on a certain date or when the issuer requests the money back. 

Additionally, some agreements will insist that some of the capital has to be returned via installments with a larger final payment made at the end of the contract.

This normally involves the interest being paid off via the installments and the principal amount being paid back in full at the end.

To sign your Loan Agreement, you should check with your jurisdiction to determine if there are any special requirements to fulfill before adding your signature. 

In most cases, you are not legally obligated for the signing of the agreement to be witnessed, however, you may wish to sign the document in front of a: 

• Notary public

• Witness

Normally, a witness is considered to be any neutral third party.

A notary can help to prevent any attempt at fraud committed by the other party in the agreement by verifying the signatures on the document. 

While it may not be necessary, it is always a good idea to sign the document in front of a notary or a witness. 

Before you start writing and modifying your own loan agreement template, it can be helpful to look over a real-life example.

If you’re not sure about the terminology or structure that a completed document should include, simply scroll through our loan agreement sample below to get more familiar with how to get it right.

Loan Agreements are often the best and legally preferred way to record and enforce a loan or an exchange of money. 

There are however many other legal documents that can be used that provide a similar function. These include:

• A promissory note functions comparably to a Loan Agreement, although it is less formal and more flexible in how it operates. It still however sets terms of repayment and is legally enforceable.

• An IOU (Meaning “I owe you”) is functionally similar to a loan agreement or promissory note. However, it only provides a record of credit given and the promise to repay and does not lay out repayment terms, nor is it legally binding. This is best used for small loans that are easier to repay all at once quickly.

• Bills of sale are used to record a transaction regarding the sale of a car, boat, animal, or another asset. Like loan agreements, these might set-out payment installments, although they focus more on the permanent transfer of a purchased item.

• Payment Agreements are used to clearly define the repayment structure and the method of payment, under the mutual understandings of the parties involved.