When you borrow money from a friend or family member, it's essential to have a loan agreement in place. This document outlines the loan terms, including the amount borrowed, the interest rate, and when the repayment is due. It can also specify what will happen if the borrower fails to repay the loan.
A loan is when one person or business entity (the lender) lends money to another person or business entity (the borrower) for an agreed-upon sum in exchange for repayments plus interest.
A loan contract is a legally binding agreement between lenders and borrowers that details the loan's terms and conditions, such as the principal amount, payment schedule, security checks, interest rate, and length.
Loan agreements are necessary in order to hold lenders and borrowers accountable for what they agreed to. Without a contract, the possibility of a deal going wrong rises. A lender, for example, may charge a borrower more interest than was agreed upon.
Whether you're a person offering financial assistance to a friend or a firm lending money to a business partner, it's always ideal to employ a loan contract form early in your financial operations. When a shareholder asks if they may borrow money or you readily agree to lend funds, it's time to bring up a loan contract.
You may have early talks to screen your possible borrower about when and how to repay your loan, but don't transfer any money unless both parties have seen and signed a personal loan agreement.
The components of an excellent loan arrangement Loan agreements can be lengthy and perplexing; nevertheless, we've discovered that just a few key elements are important. Consider the following instances.
The first stage in creating a high-quality loan contract is gathering information from both lenders and borrowers. This comprises information such as name and contact information, as well as necessary references and collateral for security in the event of debtors.
Loan agreements must include accurate facts, and we urge that all parties use primary photographic identity to verify the right information.
Documenting the conditions of your loan is maybe the most crucial component of your loan arrangement. This includes noting the loan's commencement date, loan amount, and interest rate. Because your loan conditions are likely to be the most cited material on your form, they form the foundation of your agreement template.
Lenders frequently take the lead and prefill the loan conditions as part of their offer to borrowers. Borrowers can then select whether or not they want to accept those loan terms.
Another important aspect of any loan agreement is specifying the borrowers' repayment plan. The parties must reach an agreement on how and when payments will be made. For example, a lender may specify that payments should be paid by direct deposit and are due on the first of each month.
Of course, if the borrower has alternative preferences for payment methods or payment frequency, these elements may be addressed prior to signing the contract.
The key to a good loan arrangement is ensuring that the borrowers make regular repayments as specified in the contract. It is customary for lenders to levy a late fee if borrowers fail to stick to the payment schedule. Lenders must be transparent about when payments become late and the amount of the penalty.
A loan arrangement is not legally binding until both the lender and the borrower sign it in writing. Signatures serve as legal proof that both parties recognise and accept the loan contract's provisions.
You can create your loan agreement or use a template like the one below.
This Loan Agreement (the “Agreement”) is entered into _____________________________________________________. (the “Effective Date”), by and between _____________________________________________________., with an address of ______________________________________________________. (the “Lender”) and ______________________________________________________., with an address of _____________________________________________________., (the “Borrower”), individually referred to as “Party”, and collectively “the Parties.”
WHEREAS the Lender desires to loan money to the Borrower, and the Borrower wishes to borrow money from the Lender.
NOW, THEREFORE, in consideration of the mutual promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are at this moment acknowledged, the Parties agree as follows:
Loan. The Lender agrees to loan the Borrower ____________. (the “Loan”) on the terms and conditions set forth herein.
Repayment . The Loan shall be repaid by the Borrower on or before _____________________________. (the “Repayment Date”). If the Repayment Date falls on a day that is not a Business Day, then the Repayment Date shall be the next succeeding Business Day.
Interest. The interest rate on the Loan shall be __________. percent (.%) per annum. This interest rate will be compounded annually.
Principal and Interest. The Borrower agrees to pay the Lender, in addition to the principal of the Loan, all accrued and unpaid interest on the Loan as of the date of each payment.
Prepayment. The Borrower may prepay all or part of the outstanding principal balance of this loan at any time without penalty.
Default. If the Borrower fails to repay the loan on or before the Repayment Date, the Borrower agrees to pay a late fee in an amount equal to __________. per cent (.%) of the outstanding principal balance of this Loan. Additionally, if the Borrower fails to repay the loan on or before the Repayment Date, the Lender may also take any other legal action necessary to collect on the indebtedness.
Optional Prepayments. The Lender and Borrower agree that any prepayment of all or part of the outstanding principal balance of this Loan shall be applied toward future advances under this Agreement. If such advance occurs then all interest shall accrue at ___________________.
percent (____.%). This percentage represents a non-compounded rate and will not change for as long as this Agreement remains in effect.
Notices. All notices, requests, demands, and other communications provided for under this Agreement shall be in writing and shall be deemed to have been duly given (a) when delivered personally; (b) one business day after being deposited in the United States mail, certified or registered, postage prepaid; or (c) when sent by fax with receipt confirmed, if sent during regular business hours of the recipient. Any notice required to be given hereunder may be waived in writing signed by the Party or Parties entitled to receive such information.
Construction. The rule that ambiguities are to be resolved against the drafting Party shall not apply to this Agreement. Whenever used herein, unless otherwise expressly stated: (a) the singular includes the plural and vice versa; (b) pronouns include the masculine, feminine and neuter genders; and (c) terms defined in the introductory paragraph or subsequent sections of this Agreement shall have the meanings ascribed to it.
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute the same instrument.
Assignment. The Borrower may not assign its rights or obligations under this Agreement without the Lender's prior written consent. The Lender may assign its rights or obligations under this Agreement to any party without the prior written permission of the Borrower.
Governing Law. This Agreement shall be governed by and construed by the internal laws of the State of ___________________. without regard to its choice of law rules.
Venue . Any action, suit or proceeding brought by either Party against the other Party under this Agreement shall be brought exclusively in the state or federal courts located in _____________________________. County, ____________.
The Partiesat this momenty consent to the exclusive jurisdiction and venue of such courts.
Severability . If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the remaining provisions of this Agreement shall remain in full force and effect.
Headings. The headings herein are for convenience only and shall not be used in interpreting this Agreement.
Integration. This Agreement constitutes the entire understanding between the Parties concerning the subject matter hereof. It supersedes all prior agreements and understandings, whether written or oral, between the Parties concerning such subject matter.
Waiver. No waiver of any default, breach or non-compliance under this Agreement shall be deemed a waiver of any other or subsequent default, breach or non-compliance. The waiver by either party of any right or remedy hereunder shall not constitute a waiver of such right or treatment for any other occurrence or on any other occasion.
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and assigns.
Name of Lender:
Address for Lender's Correspondence with Borrower (if different than address above):
Fax number (if applicable) :
Phone # (if applicable) :
Email Address (required if the fax is to be used as communication method; a copy can be sent to the email address as well to expedite the process):
Address for Agent for Colleague Letter (optional; required if 'Agent' is signing this Agreement on behalf of a third party, such as an employer or university department):
Phone # (optional; required if 'Agent' is signing this Agreement on behalf of a third party, such as an employer or university department):
Fax # (optional; required if 'Agent' is signing this Agreement on behalf of a third party, such as an employer or university department):
Email Address (optional; required if 'Agent' is signing this Agreement on behalf of a third party, such as an employer or university department):
Interest Rate Percentage:
Number of Repayments before Loan Maturity Date Expiration:
Principal & Interest Payment Date(s) :
Payment Frequency: Monthly / Quarterly / Semi-Annually / Annually - specify frequency here:: Once per Year Only / Every Other Year Only
I have read and agree to the terms of this Agreement.