Loan agreement

Consumer credit and personal loans

Sample loan agreement

A loan agreement defines the conditions under which an individual (lender) surrenders the use of a particular sum of money or item to another individual (borrower). The money (or item) must be returned in the same quantity and of the same kind at a time specified in advance. The loan may be interest-free or interest-bearing as well as against or without security (collateral).

How to prevent a friendship from ending due to money issues

Loans between private individuals such as friends or family members are a very popular and often simple and cheap alternative to consumer loans from professional lenders.

Loans are often agreed informally, i.e. verbally, in order to bail out a friend or relative experiencing temporary financial difficulties as quickly as possible. However, money and friendships don't usually mix. If a borrower breaks the verbal arrangement or even denies ever having received a loan, this will make the situation extremely awkward for the lender. This is because it is the lender who carries the burden of proof should the issue be taken to court.

It is therefore strongly recommended that verbal arrangements be formally set out in writing in a loan agreement. This agreement should stipulate, among other things, the amount of the loan, the repayment arrangements as well as interest and collateral, if applicable. Each party receives a copy bearing the original signatures. If the money is paid out in cash, the lender should ask for a signed receipt.

Check out our sample loan agreement (unsecured).

Please note that this is a sample agreement only, and should be adapted and enhanced to reflect the specific requirements and arrangements of the parties. This means you can define your own interest rate, agreement term and repayment arrangements. accepts no liability for the correctness or suitability of the sample agreement. If you are unsure of how to draft the agreement or concerned about the legal consequences, we recommend that you seek legal advice.

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