How to Create a Personal Loan Agreement

Written by louise balle
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A personal loan agreement, also called a promissory note, is a contract that binds one party to repay a debt to another individual. It is common in arrangements where one acquaintance lends money to another. Banks commonly write up long form agreements, but when engaging in a personal loan between two individuals, you can create a basic contract that includes the important terms of the arrangement.

Skill level:
Moderately Easy

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Instructions

  1. 1

    List each party by entering his full name, address and phone number. Identify either party as either the "borrower" or "lender." Throughout the agreement you can use the term borrower or lender to identify either party.

  2. 2

    Enter the amount of the personal loan you're granting to the borrower. Express whether this loan must be repaid in full at one time along with the exact due date, or enter terms of a standard ongoing lending arrangement. Confirm the interest rate, interest calculation method (simple or compounding), term in months and payment amount due each month in the latter case.

  3. 3

    Describe the reason for the loan, such as to purchase equipment or to start a business. If the loan is tied to collateral (an item of value), express your claim on that item in case of default.

  4. 4

    Discuss the terms of default for this personal loan agreement. That includes late fees, penalties, acceleration of the debt (calling the entire amount due) and any legal expenses that result from enforcing the loan contract. Include any information about whether the loan debt is binding to the borrower's estate and heirs in case he is unable to repay the loan.

  5. 5

    Confirm the state that governs this agreement. If you ever need to mediate or take this case to court, this information is valuable.

  6. 6

    Enter a signature block requesting the printed name and written signature of both the lender and the borrower. Have the contract notarised to make it official. Provide a copy to the borrower and make a copy for yourself.

Tips and warnings

  • Ask a lawyer to review the personal loan agreement before presenting it to the borrower for signing.

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