Personal Loan Agreement Template: U.S. Terms, Interest Rules, and a Free Sample (2026)

Written by

Helena Kozlova in

Legal Content Specialist, AI Lawyer

~12 min read · Updated May 2026

Fact-checked by

Kamal Tserakhau in

Legal Team Lead · AI Lawyer

Reviewed for accuracy · Verified May 2026

A personal loan agreement puts a private loan in writing before the money changes hands: who lends, who borrows, how much, the interest, the repayment schedule, and what happens if a payment is missed. It is the document that keeps a loan to a family member, a friend, or a private party from quietly turning into a lost friendship and an unrecoverable debt. This guide shows you what to include, which template fits your situation, the interest rules most people miss (including the IRS rule on family loans), and a filled sample you can copy.

The short answer

A personal loan agreement is a signed contract that records the lender, the borrower, the amount, the interest rate, the repayment schedule, and the consequences of default. To be enforceable it needs the parties, the loan amount, clear repayment terms, the interest rate, governing state, and both signatures. For family and friend loans, charge at least the IRS Applicable Federal Rate (AFR) to avoid imputed-interest tax problems, and keep the rate under your state's usury cap. For a single lump-sum repayment a promissory note may be enough; for installments, interest, collateral, or default rules, use a full loan agreement.

This article is general consumer information for a U.S. audience, not legal or tax advice, and the rules vary by state. For a large loan, collateral, or a tax-sensitive family loan, have an attorney or tax professional review it.

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In writinga written, signed loan is far easier to enforce than a verbal one

AFRfamily loans should charge at least the IRS Applicable Federal Rate

$10kbelow this, the IRS imputed-interest rules generally do not apply

Usury capinterest above your state's limit can be unenforceable or illegal

What is a personal loan agreement?

A personal loan agreement is a written contract between a lender and a borrower that records the loan amount, the interest rate, the repayment schedule, and what happens on default. It is used for private loans, including loans between family or friends, and it makes the loan provable and enforceable in a way a verbal promise is not.

The point of writing it down is not distrust. It is clarity. A signed agreement means both sides hold the same terms: the exact amount, when each payment is due, whether interest applies, and what happens if a payment is late. When money is lent on a handshake, the dispute is almost always about a detail nobody wrote down.

A loan agreement also protects the borrower. It caps what they owe, documents the payments they make, and prevents the terms from quietly shifting after the fact.

Loan agreement vs promissory note vs IOU: what is the difference?

A loan agreement is the most detailed: it sets the full terms, including interest, schedule, collateral, and remedies, and both parties sign. A promissory note is a shorter promise by the borrower to repay a set sum by a date, often with interest. An IOU simply acknowledges that a debt exists, with little or no detail. Use a loan agreement for installments, interest, or collateral; a promissory note for a simple repayment; an IOU only as a basic record.

Loan agreement vs promissory note vs IOU: an agreement sets full terms, a note promises repayment, an IOU just acknowledges a debt — Three ways to document a private loan, from the most detailed to the most basic.

Document	What it does	Best for
Loan agreement	Full terms: amount, interest, schedule, collateral, default, remedies	Installment loans, interest, collateral, larger sums
Promissory note	A signed promise to repay a sum by a date, often with interest	Simple loans where the parties know each other
IOU	A bare acknowledgment that a debt exists	An informal record, not real enforcement

A loan agreement offers the strongest protection because it spells out the remedies if either side fails to perform. A promissory note is lighter and common for family loans, and an IOU is the weakest of the three.

When do you need a personal loan agreement?

Use a personal loan agreement whenever a private loan involves installments, interest, collateral, or any real risk of a dispute. That includes lending to family or friends, lending a large sum, or any loan where you want a clear repayment schedule and the ability to enforce it. For a small, single-payment loan between people who trust each other, a promissory note may be enough.

Typical triggers:

You are lending to or borrowing from family or friends and want to protect the relationship.
The loan will be repaid in installments rather than a single payment.
Interest or a late fee applies.
The loan is secured by collateral such as a car or equipment.
The amount is large enough that you would want to prove it in court if needed.

The bigger the loan and the longer the term, the more a full written agreement is worth.

What should a personal loan agreement include?

A solid personal loan agreement names the lender and borrower, states the loan amount, sets the interest rate and how it is calculated, lays out the repayment schedule, defines late fees and default, lists any collateral, names the governing state, and ends with both signatures. Notarizing it or adding a witness strengthens a larger loan.

The anatomy of a personal loan agreement: parties, amount, interest, schedule, default, signatures — The anatomy of an enforceable personal loan agreement, from the parties through to the signatures.

Clause	What it should say
Parties	Full legal names and addresses of the lender and the borrower
Loan amount	The exact principal being lent, in plain numbers
Interest	The rate, how it is calculated, and that it stays under the state cap
Repayment schedule	Payment amounts, frequency, due dates, and the final payoff date
Late fee and default	When a payment is late, the fee, and when default is triggered
Acceleration	When a missed payment makes the full balance immediately due
Collateral	Any property securing the loan, if it is a secured loan
Prepayment	Whether the borrower can pay early without penalty
Governing law	The state whose law applies
Signatures	Both parties sign and date; notarize or witness larger loans

The clauses people skip are interest and default, and those are exactly the ones that decide what happens when repayment stalls. Write them in even for a family loan.

Family and friend loans: the IRS rule most people miss

If you lend money to a family member or friend and charge little or no interest, the IRS can treat the loan as if you charged interest anyway, under the imputed-interest rules in Internal Revenue Code section 7872. To stay safe, charge at least the IRS Applicable Federal Rate (AFR) for the loan's term. Loans of 10,000 dollars or less are generally exempt, so small family loans usually carry no tax issue.

This surprises almost everyone who lends to family. A loan at zero percent feels generous, but for a loan over 10,000 dollars the IRS may impute interest and tax the lender on income they never actually collected. The fix is simple: charge at least the AFR and write the rate into the agreement.

The AFR has three tiers based on the loan's term, and the IRS publishes new rates every month.

Loan term	AFR tier	Use it for
3 years or less	Short-term	A loan repaid within three years
Over 3 to 9 years	Mid-term	A typical multi-year family loan
Over 9 years	Long-term	A long repayment, such as help buying a home

As of mid-2026 the short-term AFR has run in the high-3-percent range, but it changes monthly, so always check the current figure on the IRS Applicable Federal Rates page before you set your rate. A few thresholds matter:

Loans of 10,000 dollars or less: the imputed-interest rules generally do not apply, so a 0 percent family loan is usually fine.
Loans from 10,001 to 100,000 dollars: imputed interest applies, but it is capped at the borrower's net investment income for the year.
Loans over 100,000 dollars: the full imputed-interest rules apply.

Charging the AFR is not just a tax formality. A documented, interest-bearing loan also looks like a real loan rather than a disguised gift, which matters if the IRS ever asks whether you made a taxable gift instead of a loan.

Is there a limit on the interest you can charge?

Yes. Each state sets a usury cap, the maximum legal interest rate for a private loan, and there is no single federal cap. Charging above the limit can make the interest, and sometimes the whole loan, unenforceable, and in some states it is a crime. Caps vary widely by state and by loan type, so the safe approach is a modest rate that is comfortably under your state's limit.

There is real range here. Some states set a general cap around 10 to 18 percent for private loans, others tie it to a formula, and a few set no general cap at all. Many states also have a higher criminal-usury threshold above the civil one. Because the rules differ by loan size and type, treat any single number as a starting point and confirm your state.

State	Commonly cited general cap
California	10% for most non-exempt consumer loans
Florida	18% on loans up to 500,000 dollars; higher above that
New York	16% civil; 25% criminal-usury threshold
Texas	18% general maximum on many consumer loans
New Mexico	15% where no rate is set by contract

These figures are general guidance, not legal advice, and exceptions are common (licensed lenders and banks are often exempt). For your state's current cap, check a current usury reference such as NerdWallet's state survey or your state statute before setting a rate.

Which loan template fits your situation?

Match the template to how the loan is structured: a family or friend loan with the AFR built in, an installment loan repaid over time, a secured loan backed by collateral, a single lump-sum loan documented with a promissory note, or a balloon loan with small payments and a large final payment. The right template makes the clauses that matter for your loan easy to fill in.

Five loan structures: family or friend, installment, secured, promissory note, and balloon — Five common ways to structure a private loan, each suited to a different template.

Template	Use it when	Key clause to get right
Family / friend loan	You lend to a relative or friend	Interest at or above the AFR, plus a clear schedule
Installment loan	The loan is repaid in regular payments	Schedule, late fee, and acceleration on default
Secured loan	Collateral backs the loan	A clear description of the collateral and rights on default
Promissory note	A simple lump-sum repayment	Amount, due date, and any interest
Balloon loan	Small payments then a large final payoff	The balloon amount and its due date, stated plainly

If the loan is to family, the family template with the AFR built in is the safest starting point because it handles the tax issue most people forget.

What does a personal loan agreement look like?

A simple loan agreement is short. It identifies the lender and borrower, states the principal and interest, lays out the repayment schedule, sets the late and default terms, names the governing state, and provides signature lines. Here is a filled example for a 12,000 dollar family loan repaid over three years.

Section	Example wording
Parties	This agreement is between Maria Lopez ("Lender") and Daniel Lopez ("Borrower").
Loan amount	The Lender lends the Borrower 12,000 dollars (the "Principal").
Interest	Interest accrues at 4.0% per year, at or above the applicable IRS AFR.
Schedule	The Borrower repays 354 dollars on the 1st of each month for 36 months.
Late fee	A late fee of 25 dollars applies to any payment more than 10 days late.
Default	If a payment is more than 30 days late, the full balance becomes due.
Governing law	This agreement is governed by the laws of the State of California.
Signatures	Both parties sign and date below.

You can copy this structure or generate a clean, signable version and adjust the figures to your loan.

Common mistakes to avoid

The mistakes that sink private loans are predictable: lending on a handshake with nothing in writing, charging zero interest on a large family loan, setting a rate above the state usury cap, leaving the schedule vague, and never signing. Each one weakens the loan or creates a tax problem.

Relying on a verbal agreement, which is hard to prove if repayment stalls.
Charging no interest on a family loan over 10,000 dollars and triggering imputed-interest tax.
Setting a rate above your state's usury cap, which can void the interest.
Leaving the repayment schedule vague instead of stating amounts and dates.
Skipping signatures, which removes the proof that both sides agreed.

Frequently asked questions

Is a personal loan agreement legally binding?

Yes, when it has the basic elements of a contract: an amount, repayment terms, and the signatures of both parties. A written, signed loan agreement is enforceable in court. Notarizing it or adding a witness makes a larger loan easier to prove.

Do I have to charge interest on a family loan?

For a loan over 10,000 dollars, effectively yes. If you charge below the IRS Applicable Federal Rate, the IRS can impute interest and tax you on it under section 7872. Loans of 10,000 dollars or less are generally exempt, so a small 0 percent family loan is usually fine. Charging at least the AFR avoids the problem.

What is the minimum interest rate I can charge a family member?

At least the IRS Applicable Federal Rate (AFR) for the loan's term, which the IRS updates monthly. There are three tiers: short-term for loans up to three years, mid-term for three to nine years, and long-term beyond nine years. Check the current AFR on the IRS website before setting the rate.

Is a handwritten loan agreement legal?

Yes. A handwritten agreement is valid if it contains the essential terms and both parties sign. A typed agreement is easier to read and prove, but the format does not decide enforceability; the terms and signatures do.

What is the difference between a secured and an unsecured loan?

A secured loan is backed by collateral, such as a car, that the lender can claim if the borrower defaults. An unsecured loan has no collateral and relies only on the borrower's promise to repay, which makes it riskier for the lender and is why unsecured loans often carry higher interest.

Promissory note or loan agreement, which should I use?

Use a promissory note for a simple loan repaid in a lump sum or basic installments between people who trust each other. Use a full loan agreement when there is meaningful interest, collateral, a longer schedule, or a larger sum, because it spells out the remedies if repayment fails.

How do I enforce a personal loan if the borrower stops paying?

Start with a written demand for payment that references the agreement. If that fails, you can sue for the debt, often in small claims court for smaller amounts, using the signed agreement and payment records as proof. A clear, signed agreement is what makes enforcement realistic.

Does a personal loan agreement need to be notarized?

Not usually. A signed agreement is binding without notarization. For a large loan, notarizing it or having a witness sign strengthens the proof and makes it harder for the borrower to dispute later.

Sources and references

Internal Revenue Service, Applicable Federal Rates, and Internal Revenue Code section 7872 on below-market loans.
NerdWallet and WorldPopulationReview, state usury law surveys, 2026.
General U.S. contract-law principles on promissory notes and loan agreements.

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