Free Loan Agreement Template

A loan is an agreement between 2 parties in which one individual or business (known as the lender) lends money to the other party (in this case, the borrower) [1].

This sum is then paid back over 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.

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

Some loan agreements cover specific borrowing arrangements. They can be offered by banks, credit unions, or other lenders. Here are three more common types:

Anyone lending money should use a Loan Agreement. It’s legally enforceable, providing a clear record of the loan terms and protecting both parties in case of disputes.

For borrowers, a Loan Agreement specifies the repayment schedule and interest rates, ensuring transparency and protection against predatory practices and unexpected changes.

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 [2].

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 loan details:

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. It may also include Social Security and driver’s license numbers for identity verification.
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), acceptable payment forms (cash, money order, credit card, wire transfer, etc.), interest, collateral, origination fee, grace period, late fees, prepayment penalty fees, if any, amortization schedules, governing law, etc.
5. Signatures: Sign the Loan Agreement with the other party, along with your name and date.

Use our Loan Agreement template as a helpful base to follow these steps better and create your document.

Certain basic details must appear in your Loan Agreement no matter what. Failure to include crucial information could lead to your final form proving ineffective when it’s 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)
• If it is an unsecured loan or secured loan (a secured loan has a valuable item used as collateral to offset loan risk)
• When the money is being loaned and 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 in the event of default by the borrower defaults on the amount

When you complete a Loan Agreement with our specialized advice, you will be prompted to provide these details.

Once complete, you can have your document reviewed by a legal professional to ensure it is ready.

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

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

• Monthly payments
• Weekly payments

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

If the loan proceeds are smaller, the agreement might stipulate that the outstanding balance 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 initial loan capital has to be returned via installments with a larger final payment made at the end of the contract (balloon payment).

This normally involves the interest being paid off via installments and the principal balance amount being paid back in full at the end [3].

What is an Amortization Schedule?

An amortization schedule is a table showing how each loan payment is divided between principal and interest over time. It also shows the remaining loan balance after each payment.

You can calculate your amortization payments using the following formula:

If a borrower does not make the required payments, the loan can go into default. The lender may demand the missed payments and, for loans secured by real estate, may eventually begin foreclosure if the borrower does not bring the loan current.

What is Foreclosure in the Context of a Loan?

Foreclosure is the process a lender uses to recover money owed on a defaulted mortgage or other real estate-secured loan by taking and selling the property.

It usually begins after missed payments and required notices. Foreclosure is generally a later step after the borrower has had an opportunity to address the default.

Judicial vs. Nonjudicial Foreclosure Processes

The foreclosure process depends on state law.

• Judicial foreclosure: The lender must go through the courts before the property can be sold.
• Nonjudicial foreclosure: The lender can use a statutory power-of-sale process without filing a foreclosure lawsuit.

You can see the type of foreclosure process of each each state below:

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

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

There are, however, other common types of legal loan documents that can be used that provide a similar function. These include:

• Promissory Note
• IOU
• Bill of Sale
• Payment Agreement
• Purchase Agreement

Sources [1] Loan. Cornell Law.

[2] What is a Loan Agreement? MEFA.

[3] What Is a Loan Agreement? Debt.org.