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What is a personal loan agreement?

A personal loan agreement forms a written contract between a pair of parties, usually a lender and a borrower, and outlines important points such as how much is being loaned and dispute procedures.

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Legally Binding

A loan agreement is legally binding and defines the lender’s and borrower’s personal expectations. It can be drawn up with an official lender, such as a credit union or bank, or can be created to reflect more informal situations. For example, you could ask a legal specialist, such as, to draw up an agreement if you are lending to or borrowing from a friend or family member. A loan agreement can sometimes be called a promissory note.

Type of Loans

Most personal loans will be unsecured loans. This means that you promise to repay borrowed money based on your own creditworthiness and can face penalties if you default. In contrast, secured loans are based on collateral and mean that you face losing this collateral, such as your home, if you fail to make repayments. You can read more about secured loans and mortgages on the Citizens Advice website.

The Contract

Any personal loan agreement will typically include:

The addresses and names of both the borrower and the lender and any information about co-signers or co-borrowers in the case of a joint loan.

The loan amount and whether it will be disbursed as a lump sum or in instalments.

The date the loan was made and when it is expected to be repaid.

The annual percentage rate and interest rate, if applicable.

The terms of payment, including how and when funds will be repaid, including the methods of payment and any payment authorisations required.

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Information about dispute procedures and any consequences for non-payment or late payments.

The signatures of the borrower, lender and witness.

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