Lending money to friends or family is a kind, albeit risky, act. Protect your money by creating a do-it-yourself loan agreement. Such an agreement spells out how much money was borrowed and the repayment terms. As with any other contract, such an agreement is legally binding, increasing the chances that the borrower will pay the debt.
Title and Parties
Start by giving the agreement a title, such as "Personal Loan for Educational Expenses." Below that, name the two parties entering into the agreement. Use full names (e.g., Kate B. Smith). If desired, put in parentheses the name used throughout the document to reference each party (e.g., Smith). Using short names to reference the parties makes it easier to read the rest of the document.
Nuts and Bolts
State the purpose of the agreement. Using the example of a loan for education, you might say "To spell out the terms and conditions of loan made by Jane B. Smith to Kate B. Smith for the purpose of paying for college." Explain who is lending money to whom, and what the purpose of the loan is. Also, indicate the amount of the loan.
Terms and Conditions
Spell out all terms and conditions attached, including when the first payment is to be made, the date of the month each payment is due and the amount to be paid each month. Also include the length of the loan, how much interest, if any, is being charged, and what happens if one of the parties can't carry out their responsibilities under the contract due to unforeseeable circumstances. Specify any situations you can think of that might invalidate the contract. Define any terms in the contract that you think may need clarification.
Without the signatures of both parties entering into the agreement, the contract is not legally enforceable. Thus, at the end of the document, provide space everyone to sign and date it. Type or print each person's name under the signature line. Explain, in a space above the signature, that both parties agree to the terms and conditions of the agreement by signing the document. Provide a copy of the signed document to all parties.