When we need cash for personal reasons and need it immediately, we need to get private loan agreements. But, the lengthy and time-consuming nature of personal loans often discourages us from taking one.
However, following the correct format of a personal loan agreement might make the process less time-consuming. So, read this guide to get a better insight on personal loans from beginners’ perspectives.
What Is A Personal Loan Agreement?
A legal document that ensures you agree on the terms of a loan and is signed by a borrower, and a lender, is known as a personal loan agreement. It is legally binding. So, the borrower must adhere to the terms and conditions of the loan stated within the contract. The borrower must return the loan within the given timeline abiding by the proper instructions.
An individual takes a personal loan for several purposes. There is an interest rate mentioned on the loan agreement as well, which is calculated on an annual basis. The borrower should return the loan to the lender with the interest amount as mentioned in the contract. The lender can either be a wealthy individual, or a bank, or any other financial institution.
Things To Include In A Personal Loan Agreement
Remember to include a few essential details in the loan agreement if you are writing it all by yourself. The loan amount, date of receiving the money, date of repayment, lender, and borrower details are the supremely most information to include here. Apart from that, the interest rate, late fees, penalties, repayment terms, default terms, and early payment penalty should also be mentioned there.
Finally, don’t forget to include the co-signer, law of governance, security measures, and assigning rights in the document. However, remember that the co-signer, default terms, early payment penalty, and security are not mandatory to include.
How Do You Write A Personal Loan Agreement? A Step-by-Step Guide
If you take a personal loan from a bank or write a financial entity, they will give you a form to fill up. But, if you take the loan from an individual, you might need to write the personal loan agreement. The steps of writing a personal loan agreement are;
Step 1: Start The Document With Basic Formalities
A personal loan agreement is like any other official document. So, what comes first to your mind when you think of official letters? It’s the date. Mention the date on which you are writing the document at the top left corner of the white blank page. If the loan is merely informal, you can choose to keep the date spot empty. You can put the date on which you receive the money.
Step 2: Write Down The Terms And Conditions Of The Loan
Mention why you are taking the loan, and mention the words on which your loan request is fulfilled. Don’t forget to write the conditions under which you will return the money. Mention the rate of interest, which is the most essential in a personal loan agreement.
Step 3: Mention The Date
Mention a start date, and finish date in the agreement. It is the most crucial factor on which your loan exists. It’s common sense, I know, but it’s also straightforward to overlook. For example, when will the repayment begin? Mention that clearly on the document so that you don’t have to rush later for returning the money whenever the lender asks.
Step 4: Write The Agreement Statement
Once the body of your loan agreement is complete, write a few lines that denote that both the lender and the borrower agree on the terms and conditions. Write this section below the repayment section because that will easily catch the reader’s attention.
Step 5: Sign The Agreement
We won’t consider a personal loan agreement legally binding until both parties sign it. Print both the names of the lender and the borrower at the end corners of the document. Sign on top of that in the provided blank space to enforce it legally.
Step 6: Register It Legally
Now, go to your legal registration office, and record the document. Even if either party loses the paper, the loan agreement is now officially registered and legally viable under government supervision.
Bonus Tips On Writing A Personal Loan Agreement
You can always ignore these troubles and access a personal loan agreement template online to get a better and more precise idea of writing this agreement. These templates are free, so you can either download them and fill in the details you deem fit.
Or, you can copy the format on a white page and create a new and fresh document of the personal loan agreement. Even if you choose to ignore this tip, cross-check your loan agreement once with the free templates when you are done.
If your circumstances are too complicated, don’t get the trouble of writing a loan agreement all by yourself. Instead, you can hire a lawyer, and he will guide you through the entire process. In addition, a lawyer will guide you through the contingent plans that a layperson might ignore while writing the agreement.
For example, what will happen if the borrower can’t return the money on time, the penalties for violating one term of the loan, etc., will be some extra points that only your lawyer will guide you through the best.
Putting It All Together
There are a lot of personal loan agreements available online. You can simply search those and save yourself the trouble of writing one by yourself. However, if you still want to create a loan document all by yourself, make sure to follow all the steps mentioned in this article.
It is possible to write a legally enforceable loan agreement if you remember all the essential provisions to include in it. So, get rid of your monetary crisis today with a personal loan contract.
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