Loan Agreement Letter Between Friends: How To Draft It Right!
Use these sample loan agreement letters between friends as templates for your formal agreement letter.
Last updated on November 24, 2023
Loaning money can sometimes be the culprit behind a dissolving friendship between two friends. Therefore, if you're borrowing from or lending money to a friend, think about your relationship first. Money will always come and go, but once a friendship is destroyed, sometimes it's gone forever.
If you must borrow money from a friend, it's best to put your friendship aside and simply think of it as a business deal among friends and draft an official money loaning agreement with all the details that surround the transaction. In other words, it must be clearly represented as a legal loan agreement letter. It will make the agreement more serious overall.
If you must borrow money from a friend, it's best to put your friendship aside and simply think of it as a business deal among friends and draft an official money loaning agreement with all the details that surround the transaction. In other words, it must be clearly represented as a legal loan agreement letter. It will make the agreement more serious overall.
Protect Both Parties
The letter is intended to protect both parties entering into the agreement. It's best to have legal proof of who borrowed the money, when they borrowed it, and the exact terms for paying it back. Legal proof of all the details involved will protect the bank accounts of either party as well as the friendship.
Also, it's best have the letter signed in front of a notary, even though it may require a small fee in most cases. If this isn't possible, then at least have witnesses sign the letter.
Also, it's important that both parties each have a copy of the agreement. If you want to keep your relationship intact, follow these steps to ensure that everything goes as planned and the loan is paid back as intended.
Also, it's best have the letter signed in front of a notary, even though it may require a small fee in most cases. If this isn't possible, then at least have witnesses sign the letter.
Also, it's important that both parties each have a copy of the agreement. If you want to keep your relationship intact, follow these steps to ensure that everything goes as planned and the loan is paid back as intended.
Sample Loan Agreement Letter Between Friends
1. Clearly identify both parties as well as the details of the loan.
The first paragraph should clearly identify the name of the lender and borrower along with the amount of money loaned and the date when the loan was originally made. For example, Darci Barton loaned Sandy Smith the amount of $2,500 on DATE.
2. Include the loan's interest rate.
Agree upon an interest rate regarding the loan as well as the exact method you intend to use in order to calculate the interest of the loan. Alternatively, if both parties agree there will be no interest charged, be sure to include that in the terms of the loan as well.
- Loan Agreement Letter Between Friends for Monthly Payments
- Loan Agreement Letter Between Friends for Lump Sum
1. Clearly identify both parties as well as the details of the loan.
The first paragraph should clearly identify the name of the lender and borrower along with the amount of money loaned and the date when the loan was originally made. For example, Darci Barton loaned Sandy Smith the amount of $2,500 on DATE.
2. Include the loan's interest rate.
Agree upon an interest rate regarding the loan as well as the exact method you intend to use in order to calculate the interest of the loan. Alternatively, if both parties agree there will be no interest charged, be sure to include that in the terms of the loan as well.
3. Outline the repayment terms of the loan.
Clearly outline the loan's repayment terms in detail. Often, these kinds of loans are repaid immediately after the borrower receives a significant lump sum of money following a financial event, such as a lawsuit settlement or tax refund. If this is the case, be sure to include those specific details concerning the exact event that will trigger the due date.
On the other hand, if payments will be made for repaying the loan, include a detailed description of the repayment schedule, including the beginning date and final payment date as well as the amount of each payment.
4. Officially sign and date the agreement.
Both parties need to sign and date the formal document along with a third-party witness if possible. The witness doesn't have to be a friend or family member. In fact, they should preferably NOT have a relationship with either party.
For instance, an employee at your local bank is an excellent choice to use as a third-party witness since they have zero vested interest in how the loan is collected or in the loan itself. There's also the option to have it notarized by an official notary public as well.
Clearly outline the loan's repayment terms in detail. Often, these kinds of loans are repaid immediately after the borrower receives a significant lump sum of money following a financial event, such as a lawsuit settlement or tax refund. If this is the case, be sure to include those specific details concerning the exact event that will trigger the due date.
On the other hand, if payments will be made for repaying the loan, include a detailed description of the repayment schedule, including the beginning date and final payment date as well as the amount of each payment.
4. Officially sign and date the agreement.
Both parties need to sign and date the formal document along with a third-party witness if possible. The witness doesn't have to be a friend or family member. In fact, they should preferably NOT have a relationship with either party.
For instance, an employee at your local bank is an excellent choice to use as a third-party witness since they have zero vested interest in how the loan is collected or in the loan itself. There's also the option to have it notarized by an official notary public as well.
Loan Agreement Letter Between Friends for Monthly Payments
Sandy Smith (borrower)
Darci Barton (lender)
Original Loan Date: DATE
Entire Repayment Due: DATE
Total Amount of Loan: $2,500
TERMS OF LOAN AGREEMENT LETTER:
I, Sandy Smith, borrowed $2,500 from Darci Barton on DATE. Daric Barton and I both agree that the loan will be repaid using a series of scheduled financial payments.
I, Sandy Smith, will submit a monthly payment due on the 1st of every month using a personal check in the amount of $104.20 to Daric Barton. The first payment will be made on DATE and the last payment will be made on DATE.
I, Sandy Smith, agree to a $5 late charge per day for any payments that are late until the entire loan is paid in full on DATE.
Both parties agree to the terms surrounding the said loan.
Signed and dated today on DATE.
(Sandy Smith's signature)
Sandy Smith
(Darci Barton's signature)
Darci Barton
Sandy Smith
2100 Freeport Rd.
Dixon, IL 64856
[email protected]
(654) 895-8744
Darci Barton
1958 Mountain Rd.
Dixon, IL 64856
[email protected]
(654) 895-7823
Kathryn Heigle (third-party witness)
Trust and Loan Bank representative
438 North Ave.
Dixon, IL 64856
(654) 895-4147
Darci Barton (lender)
Original Loan Date: DATE
Entire Repayment Due: DATE
Total Amount of Loan: $2,500
TERMS OF LOAN AGREEMENT LETTER:
I, Sandy Smith, borrowed $2,500 from Darci Barton on DATE. Daric Barton and I both agree that the loan will be repaid using a series of scheduled financial payments.
I, Sandy Smith, will submit a monthly payment due on the 1st of every month using a personal check in the amount of $104.20 to Daric Barton. The first payment will be made on DATE and the last payment will be made on DATE.
I, Sandy Smith, agree to a $5 late charge per day for any payments that are late until the entire loan is paid in full on DATE.
Both parties agree to the terms surrounding the said loan.
Signed and dated today on DATE.
(Sandy Smith's signature)
Sandy Smith
(Darci Barton's signature)
Darci Barton
Sandy Smith
2100 Freeport Rd.
Dixon, IL 64856
[email protected]
(654) 895-8744
Darci Barton
1958 Mountain Rd.
Dixon, IL 64856
[email protected]
(654) 895-7823
Kathryn Heigle (third-party witness)
Trust and Loan Bank representative
438 North Ave.
Dixon, IL 64856
(654) 895-4147
Loan Agreement Letter Between Friends for Lump Sum Payment
Name of Borrower
Address of Borrower
City, State, Zip Code
Email Address
Phone Number
DATE
Name of Lender
Address of Lender
City, State, Zip Code
Email Address
Phone Number
RE: Personal loan
Dear Name of Lender:
I, [Name of Borrower], borrowed [AMOUNT] from [Name of Lender] on [DATE]. The money is to be repaid in one lump sum. I, [Name of Borrower], promise to repay the full amount, [AMOUNT], with a cashier check on [DATE]. I agree to pay a late fee of [AMOUNT] per day until the loan is paid in full if I am not able to make the payment on the agreed date.
The borrower and lender agree to the payment agreement terms listed above.
Signature of Borrower, DATE
Name of Borrower
Signature of Lender, DATE
Name of Lender
By Andre Bradley
Frequently Asked Questions (FAQs)
Q: What is a loan agreement letter between friends?
Answer: A loan agreement letter between friends is a written document that outlines the terms and conditions of a financial loan between two individuals who have a personal relationship. It serves as a formal agreement to establish the loan amount, repayment terms, interest (if applicable), and any other relevant details.
Q: Why should friends use a loan agreement letter?
Answer: Friends should use a loan agreement letter to ensure clarity and avoid misunderstandings when lending or borrowing money from each other. While it may feel unnecessary to formalize the process among friends, having a written agreement helps protect both parties and maintains the friendship by clearly defining expectations and responsibilities.
Q: Is a loan agreement letter between friends legally binding?
Answer: Yes, a loan agreement letter between friends can be legally binding if it meets the necessary legal requirements. To enhance the enforceability of the agreement, it's advisable to have the letter witnessed or notarized. However, it's important to note that the legality and enforceability of such agreements may vary depending on the jurisdiction, so consulting a legal professional is recommended.
Q: Can a loan agreement letter between friends be informal?
Answer: While it is possible to have an informal loan agreement letter between friends, it is generally recommended to make it as formal as possible. By formalizing the agreement, you establish clear expectations and protect both parties in case of any disputes or issues that may arise during the loan repayment process.
Q: What happens if a friend defaults on a loan agreement?
Answer: If a friend defaults on a loan agreement, it can strain the relationship and create financial difficulties. The course of action depends on the terms outlined in the loan agreement letter. Generally, it is recommended to communicate openly and attempt to resolve the issue amicably. If necessary, legal action may be pursued to recover the outstanding loan amount, depending on the jurisdiction and the enforceability of the agreement.
Q: How can friends maintain their friendship while having a loan agreement?
Answer: To maintain the friendship while having a loan agreement, it is crucial to establish open and honest communication from the beginning. Clearly discuss the terms, repayment expectations, and any concerns or issues that may arise during the loan period. Regularly check in with each other to ensure everything is on track and address any potential problems promptly. By maintaining transparency and understanding, friends can navigate the loan agreement while preserving their friendship.
Interesting Finds
Address of Borrower
City, State, Zip Code
Email Address
Phone Number
DATE
Name of Lender
Address of Lender
City, State, Zip Code
Email Address
Phone Number
RE: Personal loan
Dear Name of Lender:
I, [Name of Borrower], borrowed [AMOUNT] from [Name of Lender] on [DATE]. The money is to be repaid in one lump sum. I, [Name of Borrower], promise to repay the full amount, [AMOUNT], with a cashier check on [DATE]. I agree to pay a late fee of [AMOUNT] per day until the loan is paid in full if I am not able to make the payment on the agreed date.
The borrower and lender agree to the payment agreement terms listed above.
Signature of Borrower, DATE
Name of Borrower
Signature of Lender, DATE
Name of Lender
By Andre Bradley
Frequently Asked Questions (FAQs)
Q: What is a loan agreement letter between friends?
Answer: A loan agreement letter between friends is a written document that outlines the terms and conditions of a financial loan between two individuals who have a personal relationship. It serves as a formal agreement to establish the loan amount, repayment terms, interest (if applicable), and any other relevant details.
Q: Why should friends use a loan agreement letter?
Answer: Friends should use a loan agreement letter to ensure clarity and avoid misunderstandings when lending or borrowing money from each other. While it may feel unnecessary to formalize the process among friends, having a written agreement helps protect both parties and maintains the friendship by clearly defining expectations and responsibilities.
Q: Is a loan agreement letter between friends legally binding?
Answer: Yes, a loan agreement letter between friends can be legally binding if it meets the necessary legal requirements. To enhance the enforceability of the agreement, it's advisable to have the letter witnessed or notarized. However, it's important to note that the legality and enforceability of such agreements may vary depending on the jurisdiction, so consulting a legal professional is recommended.
Q: Can a loan agreement letter between friends be informal?
Answer: While it is possible to have an informal loan agreement letter between friends, it is generally recommended to make it as formal as possible. By formalizing the agreement, you establish clear expectations and protect both parties in case of any disputes or issues that may arise during the loan repayment process.
Q: What happens if a friend defaults on a loan agreement?
Answer: If a friend defaults on a loan agreement, it can strain the relationship and create financial difficulties. The course of action depends on the terms outlined in the loan agreement letter. Generally, it is recommended to communicate openly and attempt to resolve the issue amicably. If necessary, legal action may be pursued to recover the outstanding loan amount, depending on the jurisdiction and the enforceability of the agreement.
Q: How can friends maintain their friendship while having a loan agreement?
Answer: To maintain the friendship while having a loan agreement, it is crucial to establish open and honest communication from the beginning. Clearly discuss the terms, repayment expectations, and any concerns or issues that may arise during the loan period. Regularly check in with each other to ensure everything is on track and address any potential problems promptly. By maintaining transparency and understanding, friends can navigate the loan agreement while preserving their friendship.
Interesting Finds