How to write a personal loan agreement

Written by holly mccoy
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How to write a personal loan agreement
Don't lend money without proper documentation. (Image Source/Digital Vision/Getty Images)

A personal loan is usually a loan between two parties, such as an employer and employee, two friends or a parent and child. When extending a loan to a loved one, friend or employee, it is important to have the information carefully written down so that the agreement is understood and remembered by both parties. A loan agreement can also help if the borrower does not repay the loan and the lender decides to pursue the matter in court. The best unsecured loans include a solid paper trail, especially if the loan is to a family member.

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  1. 1

    Sit down with all involved parties to write the loan agreement. The agreement should be done in person, and each party should go over the written document for clarification. Non-secured loans demand clear terms and specifications.

  2. 2

    As the lender, decide whether you will ask for collateral, such as a car title. If collateral is a part of the loan, then include it in the loan agreement. Asking for collateral can help offset the loss if a low interest unsecured loan goes unpaid.

  3. 3

    Include the loan amount, the time frame in which it is to be paid back, the increments, any interest that may be charged, and the method -- whether it will be paid back in cash, cheque or by some other arrangement. The more details, the easier it is for both parties to keep to their end of the bargain. All parties should sign and date the agreement. Many personal loans are low interest unsecured loans, but the terms should be clear from the start.

  4. 4

    Copy the personal loan agreement so that everyone has his/her own copy. These should be kept in a safe place.

Tips and warnings

  • Download free online loan agreement forms that can be used for general loan purposes. These are helpful for people who are new to lending money and are not sure as to what to write, such as family members. See references for a sample loan agreement. It's a good idea to compare unsecured loan plans and rates for reference.
  • Although it is often difficult to say no to friends who want to borrow money, be aware that if they don't pay you back, it may end the friendship. Also be aware that even if you win a case in court, it doesn't guarantee you will get your money back.

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