Free Loan Agreement Template

A loan agreement is a legally binding contract that spells out the borrowing terms. It sets clear expectations for repayment, interest, collateral, and what happens if things go wrong. This protects both the lender and the borrower and helps avoid costly disputes.

A loan agreement can be used for personal loans (like funding a wedding or a car), business loans, or even informal loans to friends or family. It’s also essential for tax records and to prove the money isn’t a gift.

What Should a Loan Agreement Include?

By clearly covering these points, you’ll have a solid contract that minimizes confusion and risk:

• Loan amount & terms: The principal sum borrowed and when it must be repaid.
• Interest rate: Whether fixed or variable, how it’s calculated, and when it’s applied.
• Repayment schedule: Due dates, frequency of payments, and installment amounts.
• Collateral: If required, describe what’s pledged to secure the loan.
• Late payments & default: Any penalties for missing payments, and what counts as default.
• Guarantors: If someone promises to pay if the borrower doesn’t, their details and obligations.
• Other conditions: Such as prepayment rules, insurance on collateral, or restrictions on selling it.

Collateral is something valuable the borrower pledges to secure the loan. If the borrower fails to pay, the lender can take the collateral to recover the money.

This protects the lender and often results in lower interest rates, since the lender’s risk is reduced.

Common examples include:

• A car or truck for an auto loan
• A house for a mortgage
• Expensive equipment for a business loan

If there’s no collateral (known as an unsecured loan), interest rates might be higher or the lender may require a guarantor to help secure repayment.

Writing a loan agreement might sound formal, but it’s straightforward when you break it into parts. Here’s how to create a strong contract that protects everyone.

1. Choose the Type of Loan

Decide if it’s secured (using collateral) or unsecured (no collateral).

• Secured loans often have lower rates but put property at risk if unpaid.
• Unsecured loans may cost more in interest or require a guarantor.

2. Gather Key Details

Include:

• Full names and addresses of the lender, borrower, and any guarantor.
• The principal loan amount.
• The interest rate (annual percentage) and how it accrues.
• Details of any collateral.

3. Define the Payment Terms

Be crystal clear on:

• When payments start and end.
• How often they’re due (monthly, quarterly, etc.).
• How much each payment will be.
• Any penalties for paying late or rules for paying early.

4. Explain Default and Remedies

State what counts as a default (like missing payments, late payments, or not insuring collateral).
Detail what the lender can do if that happens, such as demanding the full balance immediately or taking legal action. Include a clause for mediation, arbitration, or litigation if you want to select a place to decide any disputes.

5. Add Collateral Information (If Needed)

If it’s a secured loan, describe the collateral in detail.

• For vehicles: include the make, model, VIN, and estimated value.
• For property: the address and parcel details. If the loan is secured by land you will need to record details of your agreement at the register of deeds or land records office where the property is situated.

6. Include Guarantor Details (If Applicable)

If someone is promising to cover the debt if the borrower can’t, include their full details and exactly what they’re agreeing to.

7. Cover Other Clauses

This could include:

• Requiring insurance on the collateral.
• How to change the agreement if both sides agree.
• Any restrictions on selling or transferring collateral.

8. Sign and Date

Make sure all parties sign and date the agreement. Keep copies.