Download a free loan agreement template in PDF and Word format below. Whether lending money to family, friends, or business associates, this customizable loan contract covers loan amount, interest rate, repayment schedule, default terms, and collateral if applicable. More comprehensive than a simple promissory note. Updated for 2026.
What is a Loan Agreement?
A loan agreement is a comprehensive legal contract between a lender and a borrower that establishes the terms and conditions of a loan. It documents the loan amount, interest rate, repayment schedule, collateral (if any), default terms, and the rights and obligations of both parties.
This page does two things: it provides a loan agreement template (free, in PDF and editable Word), and it explains how the document is actually used in practice. Most people will skim the article and grab the download. If your situation is non-trivial, read the rest — there are mistakes worth avoiding.
Loan Agreement vs. Promissory Note
- Promissory note: Simpler. Documents the debt and basic repayment terms. One-page document.
- Loan agreement: Comprehensive. Includes all loan details, representations, covenants, and remedies. Multi-page document.
- Use cases: Use a promissory note for small personal loans. Use a loan agreement for larger amounts, business loans, or when you need detailed protections.
Types of Loan Agreements
Personal Loan Agreement
Between individuals — family, friends, or private lenders. Most common type for personal loans under $50,000.
Business Loan Agreement
Between a lender and business borrower. Includes additional terms around business operations, financial reporting, and corporate guarantees.
Secured Loan Agreement
Backed by collateral (property, vehicles, equipment). Lender can seize collateral if borrower defaults. Lower interest rates due to reduced risk.
Unsecured Loan Agreement
No collateral. Higher risk for lender, higher interest rates. Relies entirely on borrower’s promise to pay.
Demand Loan Agreement
Lender can demand repayment at any time with notice. Useful for ongoing credit relationships or short-term financing.
Key Components of a Loan Agreement
- Parties — lender and borrower full legal names and addresses
- Loan amount — principal in numbers and words
- Interest rate — APR, within state usury limits
- Interest calculation — simple or compound, payment basis
- Repayment terms — schedule, amounts, methods
- Repayment commencement — when payments start
- Late fees — penalty for missed payments
- Default conditions — what constitutes default
- Acceleration clause — full balance due on default
- Collateral description — if secured, list assets
- Prepayment terms — whether early payoff allowed without penalty
- Representations and warranties — borrower’s affirmations
- Covenants — borrower’s obligations during loan
- Insurance requirements — for collateral protection
- Indemnification — borrower indemnifies lender
- Governing law — which state’s law applies
- Dispute resolution — mediation, arbitration, or court
- Signatures and notarization
How to Fill Out a Loan Agreement Step-by-Step
- Choose loan type — secured or unsecured, personal or business.
- Identify the parties — full legal names and addresses.
- State loan amount — in numbers and written form.
- Set interest rate — within state usury limits.
- Define repayment schedule — installments, dates, amounts.
- Set commencement date — when payments begin.
- Add late fees — typically 5% of payment or fixed amount.
- Define default — missed payments, breach of covenants, bankruptcy.
- Include acceleration clause — full balance due on default.
- Describe collateral — if secured, list specific assets.
- State prepayment terms — usually allowed without penalty.
- Add borrower covenants — maintain insurance, provide financial statements.
- Choose governing law — lender’s state typically.
- Both parties sign — borrower required, lender recommended.
- Notarize for larger loans — strongly recommended over $5,000.
Common Mistakes to Avoid
- No interest on family loans over $10,000 — IRS may impute interest income to lender
- Exceeding state usury caps — voids the agreement
- Vague default terms — hard to enforce
- No collateral description for secured loans — collateral unenforceable
- Missing acceleration clause — lender stuck waiting for each payment
- No prepayment terms — disputes about early payoff penalties
- Skipping notarization — weakens enforcement
Download Your Free Loan Agreement Template
Frequently Asked Questions
What’s the difference between a loan agreement and a promissory note?
A promissory note is a simple promise to pay. A loan agreement is comprehensive — covering all terms, representations, covenants, and remedies. Use a loan agreement for larger or more complex loans. See our promissory note guide.
Do I need an interest rate on a family loan?
For loans over $10,000 to family, the IRS requires you charge at least the Applicable Federal Rate (AFR), about 4-5% in 2026. Otherwise, the IRS may impute interest income or treat the loan as a gift.
Can a loan agreement be enforced in court?
Yes. A properly executed loan agreement is enforceable. The lender can sue for unpaid amounts, late fees, and legal costs. Secured loans allow seizure of collateral.
What happens if the borrower can’t repay?
Options: (1) renegotiate terms, (2) accept partial payment, (3) seize collateral if secured, (4) sue for breach, (5) report to credit bureaus, (6) collections.
Are there state laws limiting loan interest rates?
Yes, state usury laws cap maximum interest. Limits vary — California is 10% general; Texas 18%; Florida 18% under $500K. Exceeding caps voids the loan.
Should a loan agreement be notarized?
Not legally required in most states, but strongly recommended for loans over $1,000. Notarization adds verification and makes court enforcement easier.
Can I sell or transfer a loan?
Yes. Loans are negotiable instruments. The new holder has the same rights to collect. Include assignment language in the agreement.
What if the borrower defaults on a secured loan?
The lender can seize the collateral following state-specific procedures. For vehicles: repossession. For real estate: foreclosure. Process varies by state and loan type.
Do I need a lawyer for a loan agreement?
For small personal loans, a template is usually sufficient. For business loans, real estate-backed loans, or amounts over $50,000, attorney review is recommended.
Can a loan agreement be modified?
Yes, with written consent from both parties. Document all amendments — payment changes, term extensions, interest changes — in writing and have both parties sign.
Related Templates
- Free Promissory Note Template
- Free IOU Template
- Free Personal Loan Agreement
- Free Business Loan Agreement
- Free Power of Attorney Template
Disclaimer: This template is for informational purposes only and does not constitute legal or financial advice. Loan laws vary by state and situation. For significant amounts or complex situations, consult a licensed attorney.