Personal Loan Agreement Template | Sample

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Updated May 17, 2022

A personal loan agreement is a legal document that is completed by a lender and a borrower to establish the terms and conditions of a loan. The loan agreement, or “note”, is legally binding. This document is considered to be a contract and therefore the borrower shall be expected to abide by its terms, conditions, and governing laws. Payments must be paid on-time and per the instructions of the agreement.

State Usury Rates – The maximum interest rate allowed in a State.

Table of Contents

What is a Personal Loan?

A personal loan is a sum of money borrowed by an individual that may be used for any purpose. The borrower will be responsible for paying the lender back plus interest. Interest is the cost of a loan and is calculated on an annual basis.

The lender may be a bank, financial institution, or an individual – the loan agreement will be legally binding in either case.

5 Types of Personal Loans

  1. Co-Sign – When the borrower has bad or no credit and needs someone else to be liable in case they do not pay.
  2. Fixed-Rate – The interest rate remains the same during the course of the repayment period.
  3. Secured – The borrower is required to put collateral down in case of default. Often the collateral is a vehicle or a 2nd mortgage put on a home.
  4. Unsecured – The borrower is not required to place collateral as part of the loan agreement. Although, if the borrower does not pay their personal assets may still be confiscated legally.
  5. Variable Rate – When the interest rate is tied to a third-party such as the current Fed Funds Rate.

Important Provisions

This lending contract must include several key provisions:

  • Loan Amount ($)
  • Loan Date
  • Borrower and Lender Information
  • Interest Rate
  • Re-Payment Terms
  • Late Fees (if any)
  • Default Terms (if the borrower doesn’t pay)
  • Early Payment Penalty (if any)
  • Security (collateral)
  • Law of Governance (State)
  • Co-Signer (if any)
  • Assigning Rights

Personal Loan vs. Line of Credit

The main difference is the personal loan must be paid back on a certain date and a line of credit offers revolving access to money with no end date.

Difference Personal Loan Line of Credit
Payment Period Specific start and end dates. Revolving, no end date.
Collateral Required? No, in most cases. Yes, in most cases.
Interest Rate Fixed, in most cases. Variable, in most cases.

Personal Loan vs. Standard Loan

Unlike business or auto loans whose terms prescribe how funds may be spent, personal loan money may be used for any purpose by the borrower.

Since personal loans are more flexible, not tied to a particular purchase or purpose, they are often unsecured. This means that the debt is not tied to any real assets, unlike a home mortgage is to the house or car loan is to the vehicle. If a personal loan is to be secured with collateral, it should be specifically mentioned in the agreement.

Sample Personal Loan Agreement

Download: Adobe PDF, MS Office (.docx), OpenDocument