Loan Agreement

A Loan Agreement between a lender and a borrower makes it possible to enforce the terms of the transaction in court.

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Loaning money to a borrower always carries the inherent risk that the borrower can't or won't pay back the money. There is also a risk to the borrower that the lender reneges on the loan or refuses to make the funds available.

In either of those scenarios, a Loan Agreement provides the basis for legal action. The borrower may be forced by a court to repay the borrower according to the terms in the agreement. A court can also compel the lender to go through with the Loan Agreement if the borrower chooses to pursue it.

What Is a Loan Agreement?

A Loan Agreement is a legally-binding document that establishes the conditions of a loan between a borrower and a lender. Loan Agreements can be used for business loans, personal loans, and all other types of loans.

Once a Loan Agreement is signed, neither party can change their minds about the terms. The lender must honor the promise to provide money to the borrower, and the borrower must repay that money as stipulated in the Loan Agreement.

Other Names for Loan Agreement

Depending on your state, jurisdiction, or context, a Loan Agreement may also be known as:

  • Promissory Note

  • Term Loan

  • I Owe You (IOU)

  • Note Payable

By using the attorney-vetted forms on 360 Legal Forms, you'll ensure that you have the correct type and wording of the form you need for your jurisdiction.

Loan Agreement Terms

  • Guarantor: A person who is legally responsible for the loan in case the borrower can't pay it back

  • Secured Loan: A type of loan that requires the borrower to pledge an asset or assets as collateral

  • Collateral: Any assets that the lender can take in exchange for the loan amount if the borrower fails to repay

  • Variable Rate: An interest rate that can change during the course of the loan

  • Origination Fee: A fee that a lender can charge the borrower to process the loan

  • Default: When the borrower fails to repay the loan

Who Needs a Loan Agreement

Any individual or organization that needs to provide a legal framework for the terms of a loan can do so through the use of a Loan Agreement. Loan Agreements don't need to be any more complicated than the terms of a loan require.

When loaning money between friends and family, many people choose not to use a Loan Agreement. However, using a Loan Agreement can be a wise decision in any situation in which a borrower receives money from a lender.

Loan Agreements aren't necessarily a sign of distrust between the two parties involved in a loan. Instead, think of a Loan Agreement as standard practice when lending or borrowing money. There is no good reason for either party to want to avoid a Loan Agreement if it is entered in good faith.

Why Use 360 Legal Forms for Your Loan Agreement

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Create your own documents by answering our easy-to-understand questionnaires to get exactly what you need out of your Loan Agreement.

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All you have to do is fill out a simple questionnaire, print, and sign. No printer? No worries. You and other parties can even sign online.

How to Create a Loan Agreement with 360 Legal Forms

A poorly-composed Loan Agreement can be just as bad as not having one at all. 360 Legal Forms provides you with the right wording for a Loan Agreement in your jurisdiction with an attorney-vetted form.

The process is fast and easy. Our proprietary form generator can help you create your customized Loan Agreement in a few short minutes.

We'll ask a handful of simple questions. Just fill in the requested information, and we'll put it together. You can see your document being created as you go.

Once completed, simply download your form as a PDF or Word document from your secure online account.

What Information Will I Need to Create My Loan Agreement?

To create your document, please provide:

  • Personal Information of the Borrower: Name and address of the person who's borrowing money and responsible for the repayment

  • Personal Information of the Lender: Name and address of the person who's lending money and entitled to receive the repayment

  • Principal Amount: The amount of money in question

  • Interest: Money that is paid in excess of the loan amount as a condition of the loan

  • Security: Any assets that will be used as collateral

  • Maturity Date: Date by which the borrower is required to repay the money

  • Default: How many days of nonpayment constitute a default

  • Dispute Resolution: If a dispute about the loan arises, will it be settled through a court of law or arbitration?

  • Governing State: Which of the state's laws will apply to the terms of the Loan Agreement?

Loan Agreement Signing Requirements

A Loan Agreement needs to be signed by the borrower and the lender. Loan Agreements don't need to be notarized, but you may choose to do so to avoid any legal complications.

What to Do With Your Loan Agreement

After creating and signing your Loan Agreement with 360 Legal Forms, you can download and print as many copies as you like. Both the borrower and the lender should retain a signed copy for their personal records. There is no need to file a Loan Agreement at the Recorder's Office.

Frequently Asked Questions

Yes, there are several types of promissory notes. The difference between them depends on due dates and payment structure. 

  • Amortized Payment Promissory Note: The borrower pays the lender back in equal installment payments consisting of both principal and interest. There is no due date; the term of the note ends when the loan has been paid back in full.
  • Demand Promissory Note: There are no mandatory installment payments. There is also no set due date for the note. Instead, the entire amount becomes due when the lender decides that it is due (with sufficient notice given to the borrower).
  • Installment Payment Promissory Note: The borrower pays the lender back in equal installment payments of both principal and interest. There is a due date for the entire amount, at which point the borrower will have to make one final payment of the loan's remaining balance.
  • Interest Only Installment Payments: This hybrid promissory note requires the borrower to make installment payments of interest, but the principal will not be due until the defined due date.
  • Lump-Sum Promissory Note: The borrower is not required to pay anything on the promissory note until the designated due date, at which point all of the interest and principal of the loan becomes due.

Don't worry if this is a bit confusing. When you get your Promissory Note through 360 Legal Forms, the correct form will be automatically generated for you based on your answers to our simple questionnaire.

An event of default is a condition which, if met, will cause the principal and all accrued interest to be made immediately due and payable. Such events include:

  • Nonpayment for a certain number of days: The borrower is a predetermined number of days late on a payment or is late twice in one 12-month period.
  • Bankruptcy: The borrower declares bankruptcy, or a bankruptcy proceeding is brought against the borrower.
  • Default under Connected Agreement: The borrower defaults on a connected agreement, such as a mortgage or vehicle purchase contract.

Both documents serve as evidence of a debt between two parties, but a Promissory Note is generally less complex than a Loan Agreement. 
A Loan Agreement is more formal and usually easier to enforce in a legal setting. Promissory Notes are still legally-binding, but a loan agreement might be a better option if there are multiple borrowers or if the loan involves a large sum of money. 

No. Promissory notes do not need to be notarized. The borrower only needs to sign the document to make it legally enforceable. A witness may be helpful if one party contests the note, but a notary is not necessary. However, the use of a notary ensures that no one challenges any signatures later and is a secure way to firmly establish the effectiveness of your document.

No, collateral can be pledged in any amount. The only intervening factor is whether the borrower and the lender agree on a specific asset to be used as collateral.
If the collateral's value exceeds the debt, and the lender recovers more than the outstanding balance of the loan, the surplus amount is returned to the borrower or other debtors.

There is no set interest rate for Promissory Notes, but rates cannot be chosen frivolously. Most states have usury laws to ensure interest rates don't exceed a reasonable limit. 
A good place to start is by checking one of the many rate calculators offered on most major banks' websites. You can also choose to charge no interest if the loan is for a friend or family member.

If a Promissory Note is not backed by any collateral, there's no material asset you can seize in lieu of payment. However, that doesn't mean you're out of options.
Even unsecured Promissory Notes should have a clause establishing actions that will follow a default. Typically, these actions may include hiring a collection agency or taking legal action through a civil suit.

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