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Personal Loan Agreement Template - A Complete Guide (Free Download + AI Generator)
Greg Mitchell | Legal consultant at AI Lawyer
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Part of our Financial Agreements series—covering contracts that secure your money deals and ensure enforceable terms—this guide explains how to create a Personal Loan Agreement that protects relationships and complies with 2025’s legal standards. A Personal Loan Agreement is a written contract that spells out exactly who owes what, to whom, by when, and under which terms. Whether you’re lending money to a friend, documenting a family loan for a home down payment, or setting repayment terms for a side-business advance, the agreement is your roadmap—and your protection—if memories fade or circumstances change. In 2025, courts, lenders, and even tax authorities expect clean, dated, signed paperwork that aligns with consumer-credit rules and state contract law.
Download the free Personal Loan Agreement template or customize one with our AI Generator—then have a qualified attorney review before signing.
Table of Contents
What Is a Personal Loan Agreement?
Why You Need One in 2025
Types of Personal Loans the Agreement Can Cover
Legal Context (TILA/Reg Z, UCC, ESIGN/UETA, State Usury, Tax)
Key Terms Every Personal Loan Agreement Should Include
Step-by-Step: How to Draft Your Agreement
Tips to Strengthen Enforceability (Without Overlawyering)
Common Mistakes to Avoid
How to Modify, Refinance, or Accelerate on Default
Checklist for a Personal Loan Agreement
FAQs
1. What Is a Personal Loan Agreement?
A Personal Loan Agreement is a contract that memorializes the terms of a loan between individuals (or small businesses and individuals). It identifies the parties, principal amount, repayment schedule, interest (if any), late fees, default remedies, and governing law.
For clarity, it typically attaches an amortization schedule and specifies accepted payment methods. The Consumer Financial Protection Bureau (CFPB) defines a personal installment loan as borrowing a sum you repay in fixed amounts over time—exactly what your agreement formalizes.
2. Why Do You Need One in 2025?
The consumer-credit backdrop remains dynamic. Household debt hit $18.39 trillion in Q2 2025, with modestly higher delinquency rates—making documentation and disciplined repayment terms more important than ever. Clear contracts mean fewer misunderstandings and better chances of on-time performance.
Personal loan usage is substantial, too. Industry data show unsecured personal loan balances near record levels and tens of millions of active loans in the U.S., underscoring how common—yet risky without paperwork—these arrangements are.
3. Types of Personal Loans the Agreement Can Cover
Family loans (e.g., help with a down payment, medical expense, tuition bridge).
Friend-to-friend loans (simpler amounts with short repayment horizons).
Partner/owner advances to a small business or side gig.
Debt consolidation loans between private parties.
Bridge loans (short-term, interest-bearing, often with a balloon payment).
If the loan is for consumer purposes (personal, family, household) and includes interest or fees, federal disclosure rules may apply (see Legal Context). If the loan is for business purposes, a different set of rules and exemptions often applies.
4. Legal Context
Truth in Lending Act / Regulation Z (TILA/Reg Z). If you’re extending consumer credit and charging a finance charge or setting more than four installments, federal law may require standardized disclosures (like APR and payment schedule). Always confirm whether your loan is consumer-purpose (covered) or business-purpose (generally not).
Promissory notes and negotiable instruments. A personal loan agreement is often paired with (or embedded as) a promissory note—an unconditional promise to pay. Article 3 of the UCC defines negotiable instruments and sets baseline enforceability concepts.
E-signatures and electronic records. Under the E-SIGN Act and state UETA laws, agreements and signatures can’t be denied legal effect just because they’re electronic—provided the parties consent and you retain the record. This allows you to sign securely via reputable e-signature platforms.
State usury limits. Many states cap interest rates for consumer loans (sometimes with licensing triggers). If you plan to charge interest, verify state usury ceilings before finalizing terms. (Check your state statute or consult counsel.)
Tax treatment and the IRS Applicable Federal Rate (AFR). For intra-family loans, charging at least the AFR can help avoid imputed interest and potential gift-tax issues. The IRS publishes monthly AFRs that lenders commonly reference.
Collections and credit reporting. If a default leads to third-party collections on a consumer debt, the FDCPA restricts collector conduct; and if missed payments are reported to credit bureaus, FCRA and Regulation V govern accuracy and consumer rights to dispute.
5. Key Terms Every Personal Loan Agreement Should Include
Parties & contact details (full legal names, addresses).
Principal amount (write in numbers and words).
Purpose (consumer vs. business—matters for TILA/usury analysis).
Interest, APR, and fees (rate, compounding, late fees, prepayment).
Repayment schedule (dates, amounts, amortization table).
Payment methods (ACH/wire/check/card; who pays processing fees).
Security or collateral (if any; precise description).
Co-signer/guarantor (liability, notices, release conditions).
Default & remedies (grace period, late fee, acceleration, costs/attorney’s fees where allowed).
Notices (how/where official notices are delivered).
Governing law & forum (state law; venue or arbitration).
Signatures (wet ink or compliant e-signature) and date.
6. Step-by-Step: How to Draft Your Agreement
Step 1 — Identify the parties and the purpose: State the lender and borrower’s full legal names and addresses. Clarify if the loan is consumer or business purpose—it affects disclosures, usury analysis, and what rules apply.
Step 2 — Set the principal and the rate: Write the exact principal and the interest rate (if any). If this is a family loan, consider referencing the applicable month’s IRS AFR to avoid unwanted imputed interest for tax purposes.
Step 3 — Build the repayment schedule: Use calendar dates and a clear amortization table. If you expect variable income, consider a hybrid approach: a fixed minimum plus a percentage of monthly income with a final balloon—just ensure the math is explicit.
Step 4 — Choose payment methods and define fees: Spell out ACH/wire/check, any processing fees, and who pays them. Add a grace period (e.g., 5–10 days) and specify late fees and the default interest rate consistent with state law.
Step 5 — Add default, cure, and acceleration: List default events (missed payment, NSF, bankruptcy filing). Give a cure window, then allow acceleration (entire balance due). If collateral is pledged, describe it precisely and outline the lender’s remedies consistent with state law.
Step 6 — Layer in consumer-law safeguards (if applicable): If the loan is consumer-purpose and includes a finance charge, ensure any TILA/Reg Z disclosures are provided (APR, finance charge, total of payments).
Step 7 — Decide on dispute resolution and governing law: Pick the state law and a venue (courts or arbitration). Consider mediation first to keep costs down.
Step 8 — Execute properly and keep records: Sign with compliant e-signatures (with consent to e-records) and store the audit trail. Under E-SIGN/UETA, a valid e-signature has the same legal effect as pen-and-ink.
7. Tips to Strengthen Enforceability (Without Overlawyering)
Write in plain English. Courts favor clarity over jargon.
Use calendar dates. “Due on the 1st of each month” beats “due upon completion.”
Include a co-signer wisely. A guarantor can reduce risk; define when (if ever) the guarantor is released.
Keep proofs. Save the signed agreement, payment receipts, and any e-signature audit trail (for ESIGN/UETA).
Respect consumer boundaries. If collections start on a consumer loan, follow FDCPA rules; if reporting to credit bureaus, follow FCRA/Reg V—including honoring disputes.
Don’t ignore taxes. For family loans, charging at least the AFR can help prevent imputed interest and gift-tax issues.
8. Common Mistakes to Avoid
Vague or missing schedule. Ambiguity about due dates and amounts is the top reason for disputes.
Uncapped late fees or usurious rates. Exceeding state usury limits or forgetting disclosures on a consumer loan risks unenforceability and penalties.
No cure/acceleration clause. Without it, your leverage after a missed payment is limited.
No paper trail. Verbal promises or casual DMs are weak evidence; use a signed agreement and save receipts.
Ignoring electronic-contract rules. Get consent to transact electronically and keep the record to preserve enforceability under E-SIGN/UETA.
9. How to Modify, Refinance, or Accelerate on Default
Amendments in writing only. State that changes are valid only if signed by both sides (wet ink or compliant e-signature).
Forbearance without waiver. If you grant extra time, label it temporary and non-precedential so you keep your rights later.
Refinance mechanics. Retire the old note; execute a new agreement with the updated principal and schedule.
Acceleration on default. After the cure period ends, you may declare the entire balance due. If you escalate to third-party collections for a consumer debt, ensure FDCPA compliance; if you report the default, follow FCRA accuracy and dispute rules.
10. Checklist for a Personal Loan Agreement
Lender and borrower full legal names and mailing addresses.
Purpose (consumer vs. business) and consideration.
Principal amount (numbers and words) and currency.
Interest rate (APR) and compounding; late fee and grace period.
Detailed repayment schedule (dates, amounts, amortization).
Accepted payment methods and fee responsibility.
Collateral description (if any) and security terms.
Co-signer/guarantor obligations (if any).
Default events, cure period, and acceleration rights.
Notices clause (email and postal addresses, effective dates).
Governing law, venue/arbitration, and cost-shifting (if allowed).
Signature blocks and date; e-signature consent language.
Exhibits: amortization table, payoff calculation method, wiring/ACH details.
Download the Full Checklist Here
11. FAQs About Personal Loan Agreement
Q: Do we need to notarize a Personal Loan Agreement?
A: In most states, notarization is not required for the agreement to be enforceable. However, having it notarized can add extra credibility and serve as evidence if a dispute arises. What matters most is having a clear, dated, and signed contract with definite terms that both parties understand.
Q: Is a separate promissory note necessary?
A: Not strictly, but it can be helpful. A promissory note serves as a stand-alone, unconditional promise to pay and may be easier to enforce in certain contexts. Your personal loan agreement can include promissory note language directly or attach a separate note that meets UCC Article 3 standards.
Q: Can we sign electronically?
A: Yes—electronic signatures are valid if they meet the requirements of the E-SIGN Act and UETA. This includes mutual consent to transact electronically, secure identity verification, and proper record retention. Using a reputable e-signature service ensures compliance and provides an audit trail.
Q: What if the borrower stops paying?
A: Follow the steps in your default clause: send a written notice of default, allow the agreed cure period, and then accelerate the balance if the borrower fails to remedy the default. If you turn the debt over to a third-party collector for a consumer loan, make sure FDCPA rules are followed. If reporting the default to credit bureaus, comply with FCRA and Regulation V accuracy and dispute-handling requirements.
Q: We’re family—do we really need to charge interest?
A: You can structure an interest-free loan, but for significant amounts or long repayment periods, charging at least the IRS Applicable Federal Rate (AFR) can help avoid imputed interest and possible gift-tax issues. The AFR changes monthly, so reference the rate in effect at the time of the loan.
Q: What’s the difference between a personal loan agreement and a handshake deal?
A: A handshake deal relies on trust and memory, which can fade or differ over time. A written personal loan agreement removes uncertainty by setting clear expectations, documenting obligations, and providing a legal framework if repayment disputes occur.
Disclaimer
This article is for informational purposes only and does not constitute legal, tax, or accounting advice. Personal-loan laws and tax rules vary by state and situation. Consult a qualified attorney and tax advisor before signing, modifying, or enforcing any agreement.
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A precise Personal Loan Agreement protects relationships, prevents misunderstandings, and streamlines repayment. Download the free template or customize one with our AI Generator—then ask a local attorney to confirm your interest terms, disclosures, and signature process.
For more resources on structuring enforceable money deals—from repayment plans to complex lending arrangements—browse our Financial Agreements library for templates, tips, and legal context.
