Personal Loan Agreement

Personal Loan Agreement

Loan documents are necessary as they provide a certain solid proof that you have fairly lent money to a person. Such documents are known as loan agreements or loan contracts and are proof of all the facts surrounding the loan. In the case of personal loans, if the loan is being lent by a person to another person, an agreement needs to be drafted, attested, and the interest rate needs to be fixed fairly. On the other hand, if the personal loan is being lent by a regular institutional lender or a bank, then the format of the loan agreement is fixed beforehand.

Legal Premise and Contents

The action of lending is basically a contract between the lender and the borrower. The agreement signifies all the details of the lending. When signed and properly attested, this agreement becomes legally valid and enforceable. By the virtue of the agreement and contact, the lender has lent a certain sum to the borrower, who has to return the sum within a certain period along with a specified interest rate, which is a consideration for the money lent. Some common constituents of the loan agreement include:

  • The names and details of the two parties, that is the lender and the borrower have to be included in the agreement.
  • Secondly, the principal amount that is lent to the borrower, and the interest rate at which is it being lent is mentioned in the agreement.
  • Collateral is often pledged to the lender by the borrower. The details of such a collateral are also mentioned in such an agreement.
  • Lastly, details of the grace period which is often provided after the last date of an installment is also mentioned in agreement. Often a fine is also imposed in cases where the grace period is used.

Once the agreement is signed and attested by a notary public, the agreement becomes a legally imposable agreement. In such a case, the agreement cannot be breached without the prior consent of either party. The agreement can be also modified, in case both the parties agree to the new conditions. It must be noted that all the principles of a common contract are applicable to this agreement.

Personal Loan Agreement Sample

The following is an example of a loan agreement that will help illustrate the point better.

Agreement for Personal Loan


Parties to the Contract, include,

  • Name of the lender, of address, who in this agreement would be referred to as the ‘lender’.
  • Name of the borrower of address who in this agreement would be referred to as the ‘borrower’.

This agreement has been signed to certify that the aforementioned lender lent a sum of $ sum to the borrower, in good faith. The amount is to be returned by the borrower to the lender in a set of 15 installments spanning 15 months with each payment to be made on the 7th day of the month.

An interest rate of 2% is to be imposed on the amount lent, which would be returned to the lender in the first month. Apart from the interest rate repayment, no actual installment is to take place in the first month. A grace period of 3 days would be provided for every installment payment, failing which the borrower would pay the lender a fine worth 15% of the installment amount.

The loan is subject to modifications by the consent of either party. The laws of the land apply to this agreement and any party can seek legal intervention upon violation of the agreement.

Signatures and Seals

Drafting an agreement when lending and borrowing money is always beneficial, because in case of any disputes, matters can be sorted out with the aid of legal proceedings.