Simple Loan Agreement

WHEREAS, the Lender agrees to lend to the Borrower [Insert Loan amount] and the Borrower owes the Lender [Insert Loan amount] (the "Loan") with interest on the unpaid Loan at the rate of [Insert rate of interest denoting a percentage] per annum, on [Insert date of which loan is being signed]; and

WHEREAS, the Borrower and the Lender desire to enter into an agreement whereby the Borrower shall pay the Lender the sum of the Loan and interest on a payment plan according to the terms and conditions herein:

NOW, THEREFORE, in consideration of the mutual covenants and promises made by the parties hereto, the Borrower and the Lender covenant and agree as follows:
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1. Loan Amount.

The Parties agree the Lender will loan the Borrower [Insert Loan amount].
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2. Loan Acknowledgement:

‍The Borrower agrees and acknowledges that the Borrower owes the Lender an amount of money equal to the Loan as defined above.
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3. Representation and Warranty of Owing Party:

‍The Borrower hereby represents and warrants that this Agreement and the payment plan herein have been developed in a manner that the Borrower reasonably believes he can pay the Lender without further interruption notwithstanding an additional change in circumstances.
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4. Payment Plan:

‍The Parties hereby agree to the payment plan (the "Plan") described as follows:

4.1 Installments: By this Agreement, it is agreed that a payment in the amount of [Insert amount] will be surrendered to the Lender annually/monthly/weekly/other on [Insert date/day] of each year/month/week/other.

4.1.1 The Borrower will continue to make payments according to this schedule until the total Loan and accrued interest is repaid on [Insert date] (“the Due Date”).

4.1.2 Unpaid principal after the Due Date listed above shall accrue interest at a rate of [Insert rate the Borrower will be paying on principal that has not been repaid by the due date denoting a percentage] annually until paid. Or;

4.2 Lump Sum: By this Agreement, it is agreed that the Loan and accrued interest shall be payable in full on [Insert date].

4.2.1 Unpaid principal after the Due Date listed above shall accrue interest at a rate of [Insert rate the Borrower will be paying on principal that has not been repaid by the due date denoting a percentage] annually until paid. Or;

4.3 Due on Demand: By this Agreement, it is agreed that the unpaid Loan and accrued interest shall be payable in full on any future date on which the Lender demands repayment.

4.3.1 Unpaid principal after the Due Date listed above shall accrue interest at a rate of [Insert rate the Borrower will be paying on principal that has not been repaid by the due date denoting a percentage] annually until paid.
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5. Method of Payment:

‍Payment shall be made to the Lender in accordance with the Plan via [Cash/Check/Money Order/Automatic Bank Withdrawal/Other]‍

5.1 The Borrower will make payment using this method unless prior written approval from the Lender allows otherwise.
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6. Early Payoff:

‍The Borrower reserves the right to pay off any remaining amount due, in full, before the Due Date, with no prepayment penalty. If the entire amount is paid off by [Insert date by which the amount needs to be paid off to get a discount for early payment], the Borrower will receive a discount as follows:

[Insert description of the discount the Borrower will receive for repaying the loan before the due date].
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7. Security:

‍This Agreement is secured by the following collateral ("Collateral"):

[Insert description of the collateral that is being used to secure the loan]

7.1 Until this Loan is paid in full, the Borrower grants the Lender a security interest in the Collateral. The Borrower hereby agrees to list the Lender as a lender on the title of the Security, regardless of the Lender's choice to perfect the security interest.

7.2 If the Borrower defaults on this Agreement and does not make payment for [Insert number of days] after it is demanded by the Lender, the Collateral will revert to the Lender and all rights in the ownership of such Collateral will belong to the Lender.
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8. Default:

‍The following events constitute default of this Agreement and upon their occurrence, the entirety of any remaining amount due shall become immediately payable:

8.1 Borrower's failure to pay the Principal Sum or any accrued interest when such payments are due;

8.2 Borrower's insolvency;

8.3 Borrower's death, incompetency; liquidation, or dissolution;

8.4 Borrower's making of a general assignment for the benefit of Borrower's creditors;

8.5 Borrower's filing of any bankruptcy proceedings;

8.6 Any application for the appointment of a receiver for the Borrower; or

8.7 Borrower's misrepresentation to the Lender for the purposes of obtaining this Agreement
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9. Legal Fees.

‍In the event of a dispute resulting in legal action, the successful Party will be entitled to its legal fees, including, but not limited to its attorneys’ fees, collection fees and the like.
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10. Severability.

In the event any provision of this Agreement is deemed invalid or unenforceable, in whole or in part, that part shall be severed from the remainder of the Agreement and all other provisions should continue in full force and effect as valid and enforceable.
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11. Waiver.

‍The failure by either Party to exercise any right, power or privilege under the terms of this Agreement will not be construed as a waiver of any subsequent or further exercise of that right, power or privilege or the exercise of any other right, power or privilege.
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12. Assignment:

The Lender may assign this Agreement with written notice to the Borrower. In the event of such assignment, the assignee may designate a new method of payment if desired.
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13. Governing Law and Jurisdiction.

‍The Parties agree that this Agreement shall be governed by the State and/or Country in which both Parties reside/do business. In the event that the Parties reside/do business in different States and/or Countries, this Agreement shall be governed by [Insert State and/or Country] law.
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14. Entire Agreement.

‍The Parties acknowledge and agree that this Agreement represents the entire agreement between the Parties. In the event that the Parties desire to change, add, or otherwise modify any terms, they shall do so in writing to be signed by both parties.

Disclaimer: Template does not constitute any form of legal advice, and the User is at all times encouraged to request external specific legal advice in respect of the execution of legal documents.

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What is a simple loan agreement?

A simple loan agreement is a contract between two parties — the borrower and lender — that details and formalizes the terms of a loan. While a loan agreement is often characterized as a one-way agreement setting out terms of repayment, such contracts are actually two-way, detailing obligations on the part of both the lender and the borrower.

Financial institutions offering simple personal loans include:

• Banks
• Credit unions
• Online lenders
• Payday lenders

Even if you’re lending money to family or a close friend, it may be a good idea to draft up a simple loan agreement.

What should be included in a loan agreement?

Whether you’re borrowing money from a bank or financial institution or drafting a personal loan contract to lend safely to friends or family, a simple loan agreement is the contract you’re after.

First things first, include all necessary and relevant details so both you and the borrower are protected.

Ensure your loan agreement contains the following details:

• Parties’ details. Who is the lender, and who is the borrower? Having address and contact details is crucial in the event of disputes needing to be resolved.
• Financial details of the loan. How much are you lending to the borrower? How much does the borrower owe? What interest rate applies? On which date will the interest apply, and how will it be applied?
• Repayment terms. This is vital in avoiding ambiguity and guaranteeing clarity between both parties. First, decide the general repayment terms via installments, a lump sum, or on-demand. For an installment loan, detail how much should be repaid, at what frequency, and on what specific date. Highlight the final payment date and detail how additional interest will accrue if the borrower fails to make payments in full. For lump sum repayments, outline the payment date and detail how other interest will accrue if the total amount is not repaid. For due-on-demand repayments, outline how interest will accrue if the total amount is not repaid on demand. You may also want to detail a notice period, so while the payment is "due on demand," you may want to cite a period of seven days, for example, in which it must be paid.
• Method of payment. Detail how the borrower should make repayments. If they’re not paying via direct debit, ensure you include details that will enable you to track payments that have been received.
• Early payoff terms. Add any terms around early payoffs, such as a discount for making early or extra payments, and whether this changes how interest is calculated.
• Security. If you are lending on a secured basis, detail the collateral or asset being used by the borrower to secure the loan. Describe the conditions under which you would take ownership of the collateral, such as a payment being 30 days late.
• Governing law. Detail under which jurisdiction your loan agreement is governed.

When should you use a loan agreement?

Even if your business does not offer products like personal loans and mortgages in the financial services industry, you might still find yourself lending money to individuals or other companies on certain occasions.

A loan agreement is more robust and offers both parties more protection than other documents, such as an IOU or Promissory Note. If you’re lending a significant sum of money to an individual or another business, it makes sense to have as much legal protection as possible. Doing so delivers trust and peace of mind and ensures you have a mechanism for reclaiming the loan should the other party not repay you as agreed.

Where and how to use a loan agreement?

The responsibility of managing lending agreements usually falls to the lender. But in some situations, the borrower will initiate the contract.

It makes sense that the lender has the responsibility, as they are likely to have more power and resources and, therefore, can enforce their terms on the other party.

Regardless of who creates the contract, Contractbook’s loan agreement template helps you draw up a contract that is 100% suited to your needs. Our template will ensure you cover all relevant details and clauses and ensure that you and the borrower enjoy stringent protection from your loan agreement, increasing the chances of a positive transaction where your business receives repayments as expected.

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If you’re looking for a faster, more efficient way to manage your lending agreements, click here to learn more.