Simple Loan Agreement Between Friends

What is a simple loan agreement between friends?

A simple loan agreement between friends is a legally binding document that outlines the terms and conditions of a loan transaction between two friends. It clearly defines the amount borrowed, the repayment terms, and any interest or fees that may be involved. This agreement helps to ensure that both parties are on the same page and protects their interests.

What are the types of simple loan agreements between friends?

There are two main types of simple loan agreements between friends: 1. Secured Loan Agreement: This type of agreement involves the borrower providing collateral, such as personal property or assets, to secure the loan. If the borrower fails to repay the loan, the lender has the right to claim the collateral. 2. Unsecured Loan Agreement: This type of agreement does not require any collateral from the borrower. The loan is based on the borrower's creditworthiness and trust between the parties involved. If the borrower defaults, the lender may have limited options for recovering the loan.

Secured Loan Agreement
Unsecured Loan Agreement

How to complete a simple loan agreement between friends

Completing a simple loan agreement between friends is a straightforward process. Follow these steps: 1. Title and Identification: Start by stating that it is a loan agreement and include the names and contact information of both parties. 2. Loan Terms: Clearly define the loan amount, repayment terms, interest rate (if applicable), and any other terms agreed upon. 3. Signatures: Both parties should sign and date the agreement to make it legally binding. 4. Witness Signature: If desired, a neutral third party can also sign as a witness to the agreement. 5. Notarization: While not always necessary, getting the agreement notarized adds an extra layer of legal authenticity and credibility.

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Title and Identification
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Loan Terms
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Signatures
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Witness Signature
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Notarization

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Questions & answers

Making a friendly loan agreement formal Name of the borrower. Name of the lender. Total value of the loan. Agreed payment schedule. Interest rate (if any) Late payment interest rate (if any) Deadline for final loan repayment. Note of collateral security (if any)
There are no legal differences between typed and handwritten agreements when it comes to enforceability. When most people think of a contract, a formally typed, the professional contract usually comes to mind. Nonetheless, a handwritten contract can be as valid as one that's typed.
For loans by a commercial lender, the lender will provide the agreement. But for loans between friends or relatives, you will need to create your own loan agreement.
Create a friends and family investment agreement that details loan terms. Include the loan amount, payment schedule, and a business plan. Also, include what will happen if you or the lender does not follow the loan terms. It would be a good idea to have a lawyer or financial professional look over the agreement.
Ask for a plan. Review the borrower's finances and help them set up a budget that includes your monthly repayment. Make sure they understand this is a loan, not a gift. Set terms that both sides agree can be enforced … and enforce them! Keep your distance. Get it down on paper.
The statute of frauds mandates that certain agreements must be in writing or they are unenforceable. As a result, a handshake agreement with a friend or relative that is not in writing could lead to an inability to legally enforce the agreement for repayment. Another consideration is the tax consequence of a loan.