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Sample Loan Agreement Templates PDF Free Download
Loan Agreement Templates
A loan agreement is a written contract between two parties — a lender and a borrower — that can be enforced in court if one party does not hold up their end of the bargain.
The borrower agrees that the borrowed money will be repaid to the lender at a future date, often including interest.
In exchange, the lender can’t change their mind and decide not to lend them money, especially if the borrower relies on the lender’s promise and makes a purchase expecting that they’ll receive the loan.
A loan agreement is sometimes called: Business loan agreement Loan contract Personal loan Promise to pay Secured/unsecured note Term loan.
What’s the Difference Between a Loan Agreement, Promissory Note, and IOU?
A loan agreement is generally more formal and less flexible than a promissory note or IOU.
This agreement is typically used for more complex payment arrangements and often gives the lender and borrower more protections such as borrower representations, warranties, and covenants.
In a loan agreement, a lender can usually also accelerate the loan if the borrower defaults. So if the borrower misses a payment or goes bankrupt, the lender can make the entire amount of the loan plus any interest due and payable immediately.
Here is a simple chart explaining the difference between an IOU, a promissory note, and a loan agreement.
| Loan | Promissory Note | IOU |
|---|---|---|
| promise to repay | promise to repay | promise to repay |
| steps for repayment | steps for repayment | |
| timeline to repay | timeline to repay | |
| legally binding | legally binding | |
| signature of borrower | signature of borrower | |
| signature of lender | ||
| repay in installments | ||
| consequences of defaulting (i.e. right to foreclosure) |
How Will the Money Be Repaid?
The loan agreement should detail how the borrower will pay the money back and what happens if the borrower cannot repay.
There are generally four types of repayment options:
| Installment Payments | Installments with Final Balloon Payment | Due on Specific Date (“Lump Sum”) | Due on Demand (“Payable on Demand”) |
|---|---|---|---|
| Specific due date | Specific due date | Specific due date | No specific due date |
| Payments for principal and interest are made at regular intervals | Payments for interest only are made at regular intervals, with the principal amount due on the maturity date | The entire amount owed, including interest, is paid all at once | The entire amount owed is due whenever the lender wants his or her money back |
| Example: $1,500 monthly payment actually consists of $500 towards the outstanding principal and $1,000 towards the interest with $1,500 due on the maturity date | Example: $500 monthly payment is applied only towards interest and the full $10,000 loan amount is due on the maturity date | Example: $10,000 loan for a friend’s small business is due on a specific date | Example: $10,000 loan for a friend’s small business is due at any time or whenever financially feasible |
Choose a Loan Type
Business Loan – For expansion or new equipment. If the business is new or in bad financial shape a personal guarantee by the owner of the entity may be required by the lender.
Car Loan – Used to purchase a vehicle usually with a term of 5 years (60 months).
FHA Loan – To purchase a home with bad credit (cannot be below 580). Requires the borrower to purchase insurance in the chance of default.
Home Equity Loan – Secured by the borrower’s home in case the funds are not paid-back.
PayDay Loan – Also known as a “cash advance”, requires the borrower to show their most recent pay stub and write a check from the bank account where they are paid by their employer.
Personal Loan – Between friends or family.
Student Loan – Provided by the federal government or privately in order to pay for academic studies at a college or university.
Obtain/Provide Your Credit Score
The first step into obtaining a loan is to run a credit check on yourself which can be purchased for $30 from either TransUnion, Equifax, or Experian.
A credit score ranges from 330 to 830 with the higher number representing a lesser risk to the lender in addition to a better interest rate that may be obtained by the borrower.
In 2016, the average credit score in the United States was 687 (source).
Once you have obtained your full credit history you may now use it to entice prospective lenders in an effort to receive funds.
Secured or Unsecured
Depending on the credit score the lender may ask if the collateral is needed to approve the loan.
Secured Loan – For individuals with lower credit scores, usually less than 700.
The term ‘secured’ means the borrower must put up collateral, such as a home or a car, in case the loan is not repaid.
Therefore, the lender is guaranteed to obtain an asset of the borrower in the event they are paid back.
Unsecured Loan – For individuals with higher credit scores, 700 and above.
Does not require the borrower to provide collateral.
Sign the Agreement
Depending on the loan that was selected a legal contract will need to be drafted stating the terms of the loan agreement including:
Borrowed amount;
Interest rate;
Repayment period;
Late fee(s);
Default language;
Pre-payment penalty (if any)
Depending on the amount of money that is borrowed the lender may decide to have the agreement authorized in the presence of a notary public.
This is recommended if the total amount, principal plus interest, is more than the maximum acceptable rate for the small claims court in the jurisdiction of the parties (usually $5,000 or $10,000).
Borrower Receives Money
After the agreement has been authorized, the lender should disburse the funds to the borrower.
The borrower will be held in accordance with the signed agreement with any penalties or judgments to be ruled against them if the funds are not paid back in full.
| Author | – |
| Language | English |
| No. of Pages | 4 |
| PDF Size | 1 MB |
| Category | Form |
| Source/Credits | eforms.com |
Sample Loan Agreement Templates PDF Free Download