How to make a legally binding agreement when loaning money

How to sign a loan agreement online When you loan someone money, you need proof that the loan was not a gift to the borrower. Additional Items In addition to the main sections detailed above, you have the option of adding additional sections to address specific items as well as a section to make the validity of the document unquestionable. Loan agreements exist to detail exactly how much money has been lent and the specific requirements related thereto. The first method is the costliest for the borrower since the interest is paid before the original loan amount, which makes it most advantageous for the lender since they get paid back more if the borrower makes all required payments. The Loan Agreement Form can help you configure what the total payment amount will be based on interest, how the interest is charged and how many payments will be made.

HOW IT WORKS

A loan agreement is a legally binding agreement that describes the terms on which a loan will be extended and repaid. You may need to draft a loan agreement if you are loaning money to or borrowing from family, friends, or a small business. Negotiate bindinv of time with the other party to agree on the amount of the loan and the payment schedule. To write the agreement, start by naming the parties involved and state the amount of the loan. State the how to make a legally binding agreement when loaning money rate, provide the payment schedule, binsing include clauses for late fees and prepayment penalties, or any other terms of your agreement. At the bottom of the document, include signature blocks where each party can sign. For more tips from our Legal co-author, like how to finalize wgreement loan agreement, keep reading!

What is a loan agreement?

By using our site, you acknowledge that you have read and understand our Cookie Policy , Privacy Policy , and our Terms of Service. I understand there is risk involved with doing this — If he goes ghost on the loan, I would have to take him to collections, and the legal fees might outweigh any benefit I would have gained. But assuming all goes well, and he remains gainfully employed until he is able to pay back the loan plus interest in full, I stand to make a decent amount of money on this loan. Are there any 3rd party servicers that would assist in personal loans such as this? Are there any risks I am overlooking?

Why You Need a Loan Agreement

A loan agreement is a legally binding agreement that describes the terms on which a bindiny will be extended and repaid. You may whsn to draft a loan agreement if you are loaning money to or borrowing from family, friends, or a small business. Negotiate ahead of time with the other legall to agree on the amount of the loan and the payment schedule. To write the agreement, start by naming the parties involved and state the amount of the loan.

State the interest rate, provide the payment schedule, and include clauses for late fees and prepayment penalties, or x other terms of your agreement. At the bottom of the document, include signature blocks where each party can sign. For more tips from our Legal co-author, like how to finalize your loan agreement, keep reading! This article was co-authored by Clinton M. Sandvick, JD, PhD. Clinton M.

Sandvick worked as a civil litigator in California for over 7 years. Categories: Contracts and Legal Agreements Lending. Log in Facebook Loading Google Loading Civic Loading No account yet? Create an account. Edit this Article. We use cookies to make wikiHow great. By using our site, you agree to our cookie policy. Article Edit. Learn why people trust wikiHow. Co-authored by Clinton M. There are 16 references monfy in this article, which can be how to make a legally binding agreement when loaning money at the bottom of the page.

Understand the purpose of a loan agreement. A loan agreement is formal proof that the two parties have binnding agreement for how borrowed money will be paid. It protects both parties in case they later have a disagreement with respect to the borrowed funds. Confirm that you want to lend to the borrower. Before loaning money, you should assure yourself whrn the borrower will be able to pay back the loan.

First, you can trust your instincts: ask yourself how confident you are that the borrower will pay you. Second, you can ask loanning borrower for proof of creditworthiness: Credit report. You can ask the borrower to pull his or her credit report and share it with you. Proof of income. You could also ask to see a recent pay stub. If you are loaning to a small business, you may want to ask to see financial accounts.

Work references. Decide on an interest rate. A critical part of any loan agreement is the interest rate. States limit the maximum amount you can charge in. Research your state usury laws. Visit this website. Negotiate with the other party about the terms. Wjen loan agreement memorializes the agreement the parties reach. Accordingly, you should talk ahead of time, and come to loanign agreement about the amount of the loan and repayment.

For example, you may go back and forth on interest rates and a payment schedule. Both parties might agree on a loan amount but disagree as to interest rates or the length of repayment.

You need to now these issues out before you sit agreememt to write the loan agreement. You want the written agreement to contain the entirety of what the two parties agreed to. Title the document. Open a blank word processing document. Identify the parties. A contract is an agreement between two parties. Accordingly, you need to identify both parties to the loan agreement. Add the date. Also include the date the loan agreement is entered. State the amount of money borrowed. Once you have identified the parties, you will need to identify the amount of the loan.

State the interest rate. You also should state when interest begins to accrue and how the interest rate is calculated, for example, by year. Provide the repayment schedule. State how often payments are made, as well as when how to make a legally binding agreement when loaning money first payment is due and when the last is.

The calculator will then tell you the monthly. You can also print out an amortization schedule after you have entered the information. Insert a clause on late fees. To induce the borrower to pay in a timely manner, you may want to include a late fee. You may be familiar with late fees from your credit card. Include agrefment grace period. This late charge shall be paid as liquidated damages, in lieu of actual damages, and not as a penalty.

Include a clause about prepayment. State whether or not prepayment of bindint entire loan is allowable. Include default provisions. You need to identify events that qualify as default and then state the consequences. Often, lenders state that a default will accelerate payment, so that the entire loan amount becomes immediately. Common events that qualify as default include: [11] non-payment of any amount due under the agreement breach of any other obligation in the loan agreement cross-default i.

Add a choice of law provision. These are provisions that clarify how contract disputes are resolved. An important provision is to state what law governs the loan agreement. Generally, people choose the state where the loan is agreed to. This Agreement shall be construed in accordance with and governed by the laws of [insert state].

Include a merger clause. You want to state that the contract bindong the entirety of the agreement and that any changes must loannig in writing. This will protect you in case the ooaning party later claims that you had side agreements not included in the loan agreement. No waiver, consent, modification or change of terms of this agreement shall bind either party unless in writing and signed by both parties.

Such waiver, consent, modification or change, if made, shall be effective only xgreement the specific instance and for the specific purpose given. Add mohey severability clause. Generally, if one part of the contract were to be found illegal, then the entire contract could be voided. To prevent this, include a severability clause.

Create a signature block. At the bottom of the page, include signature blocks. There should be one for the lender and one for the borrower. Insert a notary loanijg. Generally, you do not bimding loan agreements to be notarized. However, it can provide protection in case a legal dispute arises and there are questions about whether or not one of the parties signed the agreement. Find an appropriate notary block for your state.

Sample blocks are often posted online. Here is sample language for California. Yes No. Not Helpful 0 Helpful 0. Include your email address to get a message when this question is answered.

Loan Agreement Introduction

Learn more about Loan Agreement

You can fill them all in now, or come back to them intermittently as you now through the document. This allows for a defined, fixed payment schedule and can be attractive to borrowers who want to know that their monthly payments will be fixed. As in previous sections, replace the yellow-highlighted text with the appropriate information. Loan agreements typically include covenants, value lgally collateral involved, guarantees, interest rate terms and the duration over which it must be repaid. A sales proposal allows your organization to standardize your product and service offerings. Specify the loan delivery method This section of the PandaDoc loan agreement template designates your loan delivery method, or how the agreed upon loan amount will be disbursed.