Loan agreement template

What a loan agreement is

A loan agreement is a written contract between a lender, the person or business giving the money, and a borrower, the person or business receiving it. It sets out the amount, the repayment schedule, any interest, and the consequences if the loan is not repaid. A short version used for simple personal loans is often called a promissory note, which is mainly the borrower's written promise to repay. A fuller loan agreement is signed by both sides and covers more detail.

Writing the loan down protects everyone. The lender has proof of the debt and the agreed terms. The borrower has a clear plan and cannot be surprised by new demands. And a family loan in particular stays a loan rather than turning into a quiet resentment when memories differ.

What to include in a loan agreement

A workable loan agreement answers the obvious questions before they come up. Most templates cover the following.

• The parties. Full legal names and addresses of the lender and the borrower.
• The loan amount. The principal, written in numbers and often in words, and the date the money is handed over.
• Interest. The interest rate, if any, and how it is calculated. Many family loans charge little or no interest, but the agreement should still say so clearly.
• Repayment terms. How the borrower pays it back, whether in one lump sum on a set date, in equal monthly instalments, or on demand. Include the amount and the due date of each payment.
• Payment method. How payments are made, such as bank transfer or cheque, and where they are sent.
• Late payments and default. What counts as a missed payment, any late fee, and what the lender can do if the borrower stops paying.
• Prepayment. Whether the borrower can pay the loan off early without a penalty.
• Security or collateral, if any. Some loans are backed by an asset the lender can claim if the loan is not repaid.
• Signatures and date. Both parties sign and date, and some people add a witness or a notarization for larger amounts.

Fill out a loan agreement step by step

1. Name both parties. Write the full legal name and address of the lender and the borrower at the top.
2. State the amount and date. Enter the principal in numbers and words, and the date the funds are provided.
3. Set the interest. Decide on an interest rate or state that the loan is interest free, and say how any interest is worked out.
4. Choose a repayment plan. Pick a single due date or a schedule of instalments, and write the amount and date of each payment.
5. Add the late and default terms. Describe any late fee, a grace period, and what happens if the borrower defaults.
6. Cover early repayment and security. Note whether the borrower can prepay without penalty and list any collateral.
7. Sign and date. Both parties sign, and add a witness or notary if you want extra weight for a large loan.

Interest, and keeping a family loan honest

You can lend money interest free, and many relatives do, but even a family loan benefits from writing down that it is interest free rather than leaving it unsaid. If you do charge interest, keep the rate reasonable and lawful. States and provinces set limits on how much interest a private lender can charge, sometimes called usury limits, and a rate above the limit can be unenforceable. In some places a loan above a certain size that charges no interest can also have tax side effects, so for a substantial family loan it is worth a quick word with an accountant.

Secured versus unsecured loans

An unsecured loan is backed only by the borrower's promise to repay. If they do not pay, the lender's main option is to pursue the debt, which can be slow. A secured loan is backed by an asset, such as a car or equipment, that the lender can claim if the borrower defaults. Secured loans give the lender more protection, but they need extra care in the wording and sometimes a separate filing to register the security. For most small personal loans between people who trust each other, an unsecured written agreement is common.

US and Canada: a few differences

The core of a loan agreement is the same across both countries, but the details differ. Interest rate limits are set at the state level in the US and by federal and provincial law in Canada. The tax treatment of interest and of interest free family loans differs too. If the loan is large, or if it is tied to a property, the paperwork and any registration requirements are more involved, and local rules apply. Because these vary, treat a template as a starting point and check the requirements where you live for anything beyond a simple personal loan.

A simple loan agreement outline you can fill in

If you want to draft your own, the following outline covers the essentials. Fill in the blanks with your own details.

• Loan Agreement dated __________.
• Lender: name and address. Borrower: name and address.
• Amount: the lender agrees to loan the borrower the principal sum of __________.
• Interest: the loan carries interest at __________ per year, or is interest free.
• Repayment: the borrower will repay by __________ (lump sum or instalments), with payments of __________ due on __________.
• Late payment: a payment more than __________ days late incurs a fee of __________.
• Prepayment: the borrower may repay early without penalty.
• Default: if the borrower misses __________ payments, the full balance may become due.
• Signatures: lender and borrower sign and date, with a witness if desired.

Repayment schedules, with examples

The repayment section is where most disputes start, so it pays to be concrete. There are three common ways to structure repayment, and each suits a different situation.

• Lump sum on a set date. The borrower repays the whole amount, plus any interest, on a single due date. This works for a short bridge loan where the borrower expects a specific inflow of money, such as a bonus or the sale of an asset.
• Equal instalments. The borrower pays a fixed amount on a regular schedule, often monthly, until the loan is cleared. Write down the instalment amount, the day of the month it is due, and the number of payments. This is the most common structure for a personal loan because it is predictable for both sides.
• On demand. The loan has no fixed schedule, and the lender can ask for repayment with reasonable notice. This is informal and flexible, but it is the hardest to enforce, so it suits only loans where the two people trust each other completely.

Whichever you choose, spell out how each payment is applied, whether it reduces interest first and then principal, so the running balance is never in doubt. If the loan carries interest, an amortization schedule that lists each payment and the remaining balance removes any guesswork.

Keep records of every payment

A signed agreement is the start, not the whole job. Both sides should keep a simple record of each payment as it is made, showing the date, the amount, and the balance left. A payment log protects the borrower, who can prove what they have paid, and the lender, who can show what is still owed. If the loan is ever disputed or needs to be enforced, these records are what turn a promise into evidence. Keep the signed agreement, the record of the funds being transferred at the start, and the payment log together in one place.

Fill out and sign a loan agreement online

You do not have to retype a whole contract to get a clean, signed copy. Open a loan agreement template as a PDF and complete it on screen with our fill a PDF tool, typing the names, amount, and repayment terms into the right spots. When it is ready, add both signatures with the sign a PDF tool, which lets each person draw, type, or upload a signature and place it on the page. The document is processed in your browser, so the names, amounts, and account details stay on your own device.

Need a starting point? The form templates library includes money and agreement documents you can fill the same way, and a promissory note if you only need the borrower's promise to repay. To keep a copy and reuse the terms for a future loan, create a free account and save your finished agreement.

Before you sign

• Both parties have read the whole agreement and agree on the amount and the schedule.
• The interest rate, if any, is lawful where you live.
• The late payment and default terms are clear and realistic.
• Each party keeps a signed copy.
• For a large loan, or one tied to property, you have checked local requirements or spoken to a professional.

A loan agreement is a small effort that prevents a big misunderstanding. Write down the deal, sign it, and both sides can lend and borrow with a clear conscience.