A personal loan agreement should cover in detail how much money is being loaned, whether any interest is being charged, and when the loan balance is due to be repaid, along with the applicable payment schedule if the money is due to be repaid in installments, according to Nolo. This type of agreement is often called a promissory note. Though a loan agreement that has been properly signed by all parties involved is typically considered a binding legal document in all states, getting it notarized may be a good choice for added protection.
Nolo notes, by outlining the details of a personal loan in writing, both parties can protect their interests, which is helpful even when they know and trust each other. Also, it may be helpful to write down specifics to ensure that nothing is taken for granted or assumed.
- Outline the amount loaned and when it is due
This is the bare minimum of information a promissory note should include, along with the signatures of those directly involved with the loan.
- Specify details regarding interest
If interest is to be charged, there are many other things to consider and specify in the promissory note. These include the interest rate, how interest is to be computed, and whether the interest payments will be applied to the principal only or the total outstanding amount of the loan.
- Write down a repayment schedule if applicable
If the money is to be repaid in installments, it is important to specify the amount and frequency of the repayments. It may also be helpful to include what the lender's rights are if the person receiving the loan defaults on payment.