A loan agreement documents principal, interest rate (capped by state usury laws — commonly 6–16% for written personal loans), the repayment schedule (installment, lump-sum, or on-demand), late fees, default and acceleration terms, and any collateral. For family loans, the IRS requires interest at least at the Applicable Federal Rate (AFR) on loans above $10,000 to avoid imputed-interest and gift-tax treatment — and a signed note with a repayment record is what distinguishes a loan from a gift if the IRS or a bankruptcy court ever asks.
Loan Agreement Template
Reviewed by the Agiled editorial teamUpdated June 2026
Money lent without paper has a way of becoming a gift retroactively — in family memory, in bankruptcy court, and at the IRS. A loan agreement fixes the four...
Part of our free contract template library — 75+ agreements in Word and PDF, ready to customize and sign.
Full template text
LOAN AGREEMENT
This Loan Agreement ("Agreement") is entered into as of _______, 20 ("Effective Date"), by and between:
Lender: ________________________, with a mailing address of ________________________ ("Lender");
Borrower: ______________, with a mailing address of ________________________ ("Borrower").
Lender and Borrower are collectively referred to as the "Parties."
RECITALS
WHEREAS, Borrower has requested a loan from Lender in the amount set forth below; and WHEREAS, Lender is willing to make such loan subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties agree as follows:
1. Loan Amount. Lender agrees to loan to Borrower the principal sum of $ ("Principal"), which shall be disbursed to Borrower by [check/wire transfer/cash] on or before _______, 20. Borrower acknowledges receipt of the Principal upon disbursement.
2. Interest Rate. The outstanding Principal shall bear interest at the annual rate of % ("Interest Rate"), calculated on a [simple/compound] basis. Interest shall accrue from the date of disbursement until the Principal is repaid in full.
3. Repayment Schedule. Borrower shall repay the Principal and accrued interest in __________ [monthly/quarterly] installments of $ each, commencing on _______, 20 and continuing on the same day of each [month/quarter] thereafter until the final payment on _______, 20 ("Maturity Date"). The final payment shall include all remaining Principal and accrued interest.
4. Payment Method. All payments shall be made by [check/electronic transfer/other method] to ______________. Payments received after 5:00 PM local time shall be credited on the next business day.
5. Late Payments. If any payment is not received within __________ days of the due date, Borrower shall pay a late fee of $ or __________% of the overdue amount, whichever is greater. Late fees are in addition to, and not in lieu of, the lender's other remedies for default.
6. Prepayment. Borrower may prepay all or any portion of the outstanding Principal at any time without penalty. Prepayments shall be applied first to accrued interest and then to the Principal balance. Partial prepayments shall not relieve Borrower of the obligation to make subsequent scheduled payments unless otherwise agreed in writing.
7. Collateral. [If unsecured:] This loan is unsecured. [If secured:] To secure the obligations under this Agreement, Borrower grants Lender a security interest in the following collateral: ________________________ ("Collateral"). Borrower authorizes Lender to file any financing statements or other documents necessary to perfect the security interest. Borrower shall maintain the Collateral in good condition and shall not sell, transfer, or encumber the Collateral without Lender's prior written consent.
8. Default. The following events shall constitute default under this Agreement: (a) Failure to make any payment within __________ days of the due date; (b) Borrower's insolvency, bankruptcy filing, or assignment for the benefit of creditors; (c) Any representation or warranty made by Borrower proves materially false; (d) Borrower's breach of any other provision of this Agreement not cured within __________ days of written notice.
9. Remedies Upon Default. Upon default, Lender may, at Lender's option: (a) Declare the entire outstanding Principal and accrued interest immediately due and payable; (b) Exercise all rights with respect to the Collateral, including the right to take possession and sell the Collateral; (c) Pursue any other remedies available under applicable law. Borrower shall be responsible for all costs of collection, including reasonable attorney fees.
10. Representations and Warranties. Borrower represents and warrants that: (a) Borrower has the legal capacity and authority to enter into this Agreement; (b) This Agreement constitutes a valid and binding obligation of Borrower; (c) Borrower is not in default under any other loan or financial agreement; (d) All information provided to Lender in connection with this loan is true and complete.
11. Confidentiality. The terms of this Agreement and all financial information exchanged between the Parties shall be treated as confidential and shall not be disclosed to third parties without the other Party's written consent, except as required by law.
12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of __________. Any disputes arising under this Agreement shall be resolved in the courts of __________ County, State of __________.
13. Severability. If any provision of this Agreement is found to be invalid or unenforceable, the remaining provisions shall remain in full force and effect.
14. Entire Agreement. This Agreement constitutes the entire agreement between the Parties regarding the loan described herein and supersedes all prior negotiations and agreements. This Agreement may not be amended except in writing signed by both Parties.
15. Signatures.
Lender: ________________________ Date: __________
Borrower: ________________________ Date: __________
- Interest rate
- State usury caps apply (often 6–16%)
- Family loans > $10,000
- Charge at least the IRS AFR
- Late fee
- Commonly 5% of payment or flat
- Acceleration
- Full balance due after uncured default
What your loan agreement should cover
Parties, principal, and disbursement
Lender, borrower, the exact amount, and how/when it moves (single disbursement or scheduled draws). Document the transfer method — the wire receipt is the loan's birth certificate.
Interest rate and computation
Annual rate, simple or amortized, computed on what basis. State usury laws cap rates for non-bank lenders — commonly 6–16% for written personal loans, with civil (and sometimes criminal) penalties above the cap. Zero-interest is lawful but has tax consequences on larger family loans.
Repayment schedule
Installments (amount, due date, number — with an amortization table attached), lump sum at maturity, or on-demand with a notice period. The schedule is the contract's heartbeat; vague 'when you can' terms make the debt nearly unenforceable and the statute of limitations ambiguous.
Prepayment terms
Right to prepay without penalty is the friendly default — say it explicitly, and state how prepayments apply (accrued interest first, then principal).
Late fees and grace period
A grace period (5–15 days) and a late fee — commonly 5% of the missed installment or a flat amount, within state limits. The fee prices lateness without escalating to default on the first slip.
Default, cure, and acceleration
What constitutes default (missed payment beyond cure, insolvency, false statements), the cure window (commonly 10–30 days after notice), and acceleration — the whole balance becomes due after uncured default. Without acceleration, the lender sues installment by installment.
Security/collateral (if any)
Unsecured, or secured by named collateral — a vehicle (lien on title), equipment, or account. Secured lenders should perfect the interest (UCC-1 filing, title lien) — an unperfected security interest loses to other creditors in bankruptcy.
Co-signer or guarantor
A second obligor liable when the borrower doesn't pay — with the guaranty stated as payment (collectable immediately on default), not mere collection. Co-signers should understand they're not character references; they're the backup wallet.
Family-loan tax mechanics
Loans over $10,000 between family members should carry at least the IRS Applicable Federal Rate (published monthly) — below-AFR loans trigger imputed interest for the lender and potential gift treatment. Above $19,000 forgiven in a year (2026 annual exclusion) gift-tax filing thresholds enter the picture.
Governing law and collection terms
Which state's law applies (usury caps differ — this clause has teeth), attorney-fee recovery for collection, and where disputes get heard. Small personal loans live or die in small-claims court; the agreement should be legible to that judge.
Typical loan agreement terms (U.S., 2026)
| Term | Typical range / rule | Notes |
|---|---|---|
| Personal loan rate (written) | 6% – 16% | State usury caps govern |
| Family loan minimum rate | IRS AFR | Loans > $10,000; published monthly |
| Grace period | 5 – 15 days | Before late fee applies |
| Late fee | 5% of installment | Or flat fee, within state limits |
| Cure period after notice | 10 – 30 days | Before acceleration |
| Gift-tax annual exclusion | $19,000 (2026) | Forgiveness above may need filing |
| Written-contract limitations period | 3 – 10 years | By state, from breach |
Usury caps, late-fee limits, and limitation periods vary by state, and lending at scale (multiple loans, business of lending) can trigger licensing requirements. Large or secured loans deserve attorney review.
How loan agreements work in practice
The family loan done properly
A parent lends an adult child $40,000 toward a house. Done as paper-free generosity, it's a gift with gift-tax filing implications and a future inheritance argument. Done as a loan: a signed note at the current AFR, a monthly repayment schedule, payments actually made and recorded (autopay creates the record for free), and — if the parent later chooses — forgiveness in annual increments inside the gift exclusion, documented each year. The note also matters at the mortgage: lenders treat documented family loans and undocumented 'gifts that might be loans' very differently in underwriting.
The friend-and-business loan
Lending into a friend's business deserves business terms: the borrower named correctly (the LLC, the person, or both — lending to the LLC alone means the LLC's assets are the recourse), a personal guaranty where the entity is thin, interest within the usury cap, and a security interest in equipment or receivables where the amount justifies a UCC-1 filing. The awkward conversation at signing — 'what happens if the business can't pay' — is precisely the conversation the agreement exists to have while everyone is still friends.
When payments stop
The sequence the agreement should choreograph: grace period passes, late fee applies, default notice starts the cure window, cure fails, acceleration makes the full balance due — then demand letter, small-claims or civil suit within the state's limitations period, and judgment-collection tools (garnishment, liens) per state law. Lenders holding security move on the collateral instead. What makes any of this work is the record: the signed note, the payment history, and the notices — which is why informal lenders who skipped the paperwork usually skip the recovery too.
Mistakes that weaken a loan agreement
Lending on a handshake
Unwritten loans become gifts in the borrower's memory, unprovable claims in court, and imputed gifts at the IRS. The note takes ten minutes; its absence can cost the principal.
Setting interest above the usury cap
Usury violations don't just trim the rate — in many states they void the interest entirely, and in some, principal too. Check the cap for the governing state before writing 18% because it sounded fair.
Charging family zero interest on large loans
Below-AFR loans over $10,000 generate imputed interest the lender owes tax on anyway, plus potential gift treatment. Charging the (modest) AFR is cheaper than the tax surprise.
No acceleration clause
Without acceleration, each missed installment is its own little lawsuit and the limitations clock runs payment by payment. One clause converts default into a single collectable balance.
Taking collateral without perfecting
A security interest that's only in the contract loses to other creditors in bankruptcy. Vehicle liens go on the title; business collateral takes a UCC-1 filing — perfection is what makes 'secured' true.
How to use this template
- 01
Download the loan agreement template in Word or PDF.
- 02
Fill in the parties, principal, and disbursement method.
- 03
Set the interest rate inside the state usury cap — for family loans over $10,000, at least the current AFR.
- 04
Build the repayment schedule and attach an amortization table for installment loans.
- 05
Set grace period, late fee, cure window, and acceleration; add collateral and perfect it if secured.
- 06
Both parties sign (notarization adds evidentiary weight), the funds move with a documented transfer, and payments get recorded from the first one.
Skip this template if…
- Lending as a business — multiple loans or advertising lending triggers state licensing and federal consumer-credit rules.
- Mortgages on real property — real-estate-secured lending needs recorded instruments (mortgage/deed of trust) and title work.
FAQs
Is a personal loan agreement legally binding?
Yes — a written agreement with parties, amount, repayment terms, and signatures is enforceable like any contract, and far easier to prove than the oral loan it replaces. Notarization isn't required but strengthens the evidentiary record for larger loans.
How much interest can I charge on a private loan?
Whatever your state's usury law allows — commonly 6–16% annually for written personal loans by non-licensed lenders, with significant variation. Exceeding the cap can void the interest and worse. For family loans over $10,000, the floor is the IRS Applicable Federal Rate to avoid imputed-interest treatment.
Do family loans need to charge interest?
Loans of $10,000 or less generally escape the rules. Above that, charging less than the IRS AFR makes the foregone interest taxable to the lender as imputed interest and potentially a gift. The AFR is modest — charging it, with a signed note and real payments, keeps the loan a loan.
What happens if someone doesn't repay a loan agreement?
The agreement's sequence runs: late fee after the grace period, default notice with a cure window, then acceleration of the full balance. Collection goes through demand, small-claims or civil court within the state's limitations period (commonly 3–10 years for written contracts), and judgment enforcement — or against the collateral if secured.
Should a loan be secured or unsecured?
Size and risk decide. Secured loans attach named collateral — but the security interest must be perfected (title lien for vehicles, UCC-1 filing for business assets) to survive competing creditors and bankruptcy. For small personal loans, a co-signer is often the more practical credit support.
Can I forgive a family loan later?
Yes — forgiveness is a gift in the year forgiven. Many families forgive in annual increments within the gift-tax exclusion ($19,000 per recipient in 2026, double for married couples), documenting each forgiveness in writing while the note stays in force for the remainder.
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