While taking a loan, there are several different loan documents, contracts, and agreements that are drafted and signed by both the parties, namely, the lender and borrower. These documents which are signed, make the loan contract a legally enforceable one. It means that the person who is involved in the signing of the contract can initiate legal action upon the other party if terms of the contract are breached.
A personal loan is basically a loan that is borrowed for several purposes that are not usually disclosed to the lender. The unspecified purpose of such a loan makes it quite a risky one and hence also a secured loan. There are some smaller variants of this loan, namely cash advance loans and payday loans.
About Personal Loan Agreements
Banks, financial lenders, and professional lenders use specially drafted agreements, which have been formulated by their lawyers, as per the lending and credit facility of the lenders. These documents are sophisticated, intricate, and are chiefly meant to be used by professional lenders.
In contrast, if you want to lend a small sum of money to a friend or colleague, or if you want to provide a small loan in relation to your business, you can use the agreement template which has been presented below. This template is quite simple; you can print or modify it as per your requirements.
Elements of an Agreement
There are some important constituting elements that have to be included in the agreement:
- The first element that is to be mentioned in the agreement includes the two parties of the loan, namely the lender and the borrower, along with their full details.
- Next comes the amount that is loaned, its mode, and the account numbers.
- The third element that needs to be included in the agreement is the total amount of the loan and the interest rate, plus the receivable interest of the total loan.
- Next are dates of payments and the commencement date of the loan and the final payment date.
- The last element is the collateral and its confiscation in cases where the borrower is unable to repay the loan.
- Sometimes, a loan modification clause is also included.
Personal Loan Agreement Template
Before you draft your own agreement, make it a point to have a look at a sample loan agreement or some practical examples of such loan agreements.
This document facilitates a loan agreement and legally enforceable contract, between your name and borrower’s name. The agreement which is a contract, shall have the same nature of a common loan contract and all the laws of the land, which are relevant thereof shall be applicable before, during, and after the term of the loan (loan contract). This loan agreement shall be governed by the following clauses which may be used as basic evidence henceforth.
1. Parties to the Loan Agreement
The following parties and their heirs and legal representatives shall be parties to the loan agreement. No other external party or third-party can hold either of the two contracting parties liable for any lawful liabilities and rights generated in the due course of the contract, its formation, execution, performance, breach, relief, and handing over of right or liabilities.
- Borrower’s name and address, who henceforth in this document or any other document or communication in due course in reference to this contract shall be referred to as the ‘borrower’.
- Lender’s/your name and address, who henceforth in this document or any other document or communication in due course in reference to this contract shall be referred to as the ‘lender’.
2. Key Statement
As per the verbal agreement, free consent and free will, and compliance with the law of this land, the lender shall on date of lending, loan a sum of $10,000 to the borrower, in accordance with the procedure as stated by this document. The borrower shall return the same sum, along with the Interest charged in accordance with the procedure as stated by this document.
3. Procedure of Lending
The sum of $10,000 as stated in the Clause 2, shall be lent by the lender to the borrower by depositing it into account #:_____________________ which belongs to the borrower, on date.
The borrower shall, on or before the 10th day of every month, pay the lender an installment of $1000 along with an interest of 10% per annum which shall amount to $100 ever month. The payment of installment shall be made at the rate of $1100 per every installment with $10 being the interest imposed. In the months where the payment is not made, the interest shall be levied, at the rate of 10%, which shall amount to $100. The repayment of installments shall commence from date and end on date, the days being the first and last dates of paying the installments.
5. Mode of Repayment
The repayment shall be done in 10 installments, with one installment every month. Every installment can be made either by a bank check or a direct transfer to the lender’s account #:______________
At the end of a time period of 12 months, if there is any unpaid debt, then the lender shall have a lien over the bank account (#:____________) of the borrower.
7. Legal Premise
The agreement and the contract enforcement shall be governed by the law of the land.
Signatures of lender, borrower, and witnesses
(The details of the bank accounts should be attached to the agreement for future reference)
Difference between a Promissory Note and an Agreement
It must be noted that there is a significant difference between a promissory note and a loan agreement. Though the underlying principle is same, a promissory note is basically a negotiable instrument, whereas a loan agreement is a contract. Though the objective and the basic mechanism is same, the legal premise is different.
There are some cases where you will have to approach a notary public or any authorized person to attest the document.