How to write a loan contract

Written by charlie gaston
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Writing a personal loan contract requires strict adherence to several guidelines. Ideally, the loan contract will be reviewed and checked for errors by an attorney. If this is not possible, don't worry, you can use the guide below to write a step by step loan contract. Be sure careful consideration is taken and every items is verified before the contract is signed. By law, a loan contract is a legal document that can be used in court to collect on the debt.

Skill level:

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  1. 1

    Write the names of the people who are entering into the contract. Identify each person/party as the creditor or debtor in the loan agreement.

  2. 2

    Write the principle. Write the amount of money borrowed in numeric form. For example, "Jane Smith agrees to a loan of £3,250."

  3. 3

    Write the interest rate. Write the per cent paid or earned for each year of the loan. For example, "Jane Smith agrees to a £3,250 loan with an interest rate of 1 per cent."

  4. 4

    Write the terms of the loan. Write how many years the debtor has to repay the loan. Common loan terms are 12 months, 1 year, 3 years, 5 years or 10 years.

  5. 5

    Write the use of the loan. Write how the loan will be used. Common loan uses include paying for medical expenses, repaying credit card debt, financing a new vehicle or performing renovations on a property. Be as specific as possible.

  6. 6

    Write a prepay clause indicating if a prepay penalty will be imposed. Write the prepay penalty as a monetary or percentage value.

  7. 7

    Have the contract notarised and provide copies to the debtor. Both the creditor and the debtor must sign and date the contract.

  8. 8

    Use a loan contract template. Use a template from or and complete the template as directed. You will be directed to note your role in the loan as well as the loan amount.

Tips and warnings

  • Agree to the terms of the loan before drafting the loan contract.
  • Never enter into a loan contract without an attorney or professional to oversee the terms of the contract.

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