Simple Loan Agreement Template Between Friends and Family

A quick search on Google will result in a ton of free sample loan agreement templates. Unfortunately, a lot of them are quite complex and contain a lot of financial jargon. If you are in need of a simple loan agreement that gets straight to the point, you are in luck! Below, you will find an easy-to-follow template that both the lender and borrower can quickly understand in a matter of minutes.

Now before we delve into the sample template, I must warn you that lending money to a friend or family member is risky business even if there is a binding contract involved. For one thing, failing to repay the lender can quickly deteriorate any solid relationship, regardless of whether you’re best friends or close cousins.

Do you really want to risk having a poor relationship with someone so close over money? Keep in mind that it is completely okay to refuse to help the person. Whenever someone asks to borrow money and I don’t have the resources to help them, I tell them to get a loan from a bank or utilize their credit cards. I’m sure if you explain your current situation and why you can’t lend them the funds, they’ll be more than willing to understand. In fact, refusing to lend money is far less awkward than asking the person to repay it.

If you’ve read the above paragraph and still want to lend a friend or family member money, consider “lending” it with no obligations or strings attached. Provide the money as a gift and tell them that they do not need to pay it back. This will help lift some of the burden of trying to get the money back once you’ve lent it. Obviously, not everyone can be a saint and often times practicality is king.

Simple Loan Agreement – Example

With any contract, you want to be as simple and accurate as possible regarding dates, names and numbers. Any errors will lead to confusion and further complicate and transactions in the future.

On January 15, 2016, I, John Smith will lend Jane Doe a sum of $3,600 in the form of (cash, check, traveler’s check, or money order), which is to be fully repaid by January 15, 2017.

Payments will be made over a 12-month period, starting on February 15, 2016 and ending on January 15, 2017. The interest rate is 3.5%, which will lead to a monthly payment of $310.50.

Each monthly payment must be made before or on the 15th of every month. Failure to make monthly payments on time will result in an additional fee of $25.

Jane Doe, (Borrower) John Smith, (Lender)
January 15, 2016, (Date) January 15, 2016, (Date)
_______________(Signature) _______________(Signature)

How to Protect Yourself from a Default

The above template is as simple as loan agreements can get. The interest rate and late fees are optional and you may choose to take them out if you wish. Moreover, if you wish to have additional measures of protection, you can choose to include a terms of default. By including a terms of default you can outline the consequences of failing to pay back the loan. A few examples of terms of default can be additional fees, higher interest rate or collateral.

Another great way to protect yourself and legitimize your contract is to have it notarized. The lender and the borrower will have to appear before a notary republic and sign the contract before a third party. There is a small fee involved with getting your contract notarized, but it is well worth the cost.

Important Things to Consider

You can easily see how a simple loan agreement template can easily morph into a complex one by adding more and more stipulations. While these additive measures may offer you more protection, be wary that it may also dampen your relationship with friends or loved ones. The borrower may start to think that you do not trust him or her to pay you back on time.

Keep in mind that a simple loan template should only be used for monetary amounts that are quite small. For much larger sums of money it is highly recommended that you consult a lawyer and have a legal professional draw up the contract.

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