![]() Once you have both agreed on the terms, you may want to have the personal loan contract notarized or ask a third party to act as a witness during the signing. However, the do-it-yourself approach is perfectly acceptable and just as legally enforceable. While financial institutions have templates on which they base their personal loan contracts, you’ll have to draw up your own if you’re borrowing from another individual.ĭepending on how complicated your personal circumstances are, you may feel you need to hire a lawyer to guide you through the process. How do you write a personal loan agreement? Signatures from both the lender and borrower, along with the date of signing.Penalties for paying back the loan early (also known as prepayment penalties), if applicable.Options to change the terms of the loan.Consequences and penalties for late payments or nonpayment.Information on how potential disputes will be mediated and/or settled.Payment authorizations if required, such as for automatic withdrawals from a checking account.Method of payment, such as through a check or cash.Payment terms, including whether the loan will be paid on demand, in installments or a as a lump sum, and the amounts and dates of payments.Annual percentage rate (APR), if applicable. ![]() ![]() Information about the loan cosigner, if applicable.Names and addresses of the lender and the borrower.What should be in a personal loan contract?Ī personal loan agreement should include the following information: While it might seem like overkill for small amounts that can be paid off by the next paycheck, you might want to consider doing the paperwork for larger personal loans that will take longer to repay. When lending money to family or close friends, it’s a good idea to draft an official agreement to avoid any misunderstanding that could affect your relationship. Make sure to review that section in your agreement. If you don’t pay back the loan, you could lose your collateral to the lender. If you draft a secured personal loan contract, you must put up collateral, such as your car or your home, to back up the loan. Most personal loans are unsecured loans, meaning you promise to pay back the funds based on your creditworthiness as a borrower. If you default on the loan, a lender may take action in court to get its money back via wage garnishment or another method. Any fees and/or penalties you’ve agreed to pay, depending on the scenario (such as if you prepay the debt or become delinquent).Basically, it states (among other things): As a legally binding contract, a personal loan agreement can be drawn up with an official lender – like a bank or credit union – or in a more informal situation such as with a friend who’s lending you money.
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