A Loan Agreement is a binding contract between a lender and a borrower documenting the terms and conditions of a monetary loan. Key aspects of this agreement include the purpose and amount of the loan, repayment terms, and a repayment schedule. 

Occasionally, a Loan Agreement may also be referred to as a lending contract.

LawDepot’s Loan Agreement template allows you to create a private loan contract for personal or business purposes while also letting you add collateral to your terms.

Loan Agreements can be secured and unsecured:

• Secured Loan Agreements are used when collateral assets back the loan. Collateral helps ensure repayment. If a borrower doesn’t repay a loan, the lender claims ownership of the collateral property as repayment
• Unsecured Loan Agreements are used for loans without collateral assets. Because they lack collateral security, they tend to have higher interest rates. If a borrower doesn’t repay a loan, the lender can seek legal action to collect the unpaid debt

An agreement can be written for a personal or business loan. Personal loans are used between individuals, like family or friends, while business loans grant money to a business. 

Whether you’re the lender or the borrower, you should use a Loan Agreement for any private loans. A written agreement is particularly essential when a loan is for a larger sum of money. 

If a loan is for family, friends, or a business, use a Loan Agreement when lending money for: 

• Business costs like loans for start-ups or a parent company lending a significant sum to a subsidiary
• Debt and bills, like helping a family member pay outstanding bills
• Real estate purchases, such as loaning funds to a sibling for a down payment
• Vehicle purchases, such as lending money to a friend to purchase a car

If you have any questions regarding Loan Agreements, consult a solicitor. 

Yes, you should use a Loan Agreement so that both parties understand their obligations to each other. Private loans are not as formal as bank or larger financial institutions lending someone money. So, a written agreement protects both parties, especially for larger sums of money.

Loan Agreements have more complex terms and conditions than an I.O.U. or a verbal agreement, which helps enforce the requirements for both parties. For example, the agreement will clarify each party’s rights and responsibilities if a dispute occurs. If the concern escalates, the written contract can be evidence in court. 

If a borrower fails to repay a loan or misses a payment, a lender can use a Demand Letter before taking the next steps of legal action that their agreement allows.

Yes, a valid Loan Agreement is legally binding. Loan Agreements are primarily governed by contract law in the UK. To be valid, they must include legal elements such as:

• Offer and acceptance: A lender offers a certain amount of money to the borrower with the condition that they must meet the repayment terms, and the borrower accepts the offer
• Consideration: Each party exchanges something of value
• Intention: Both parties mutually agree to enter into a binding contract
• Legality: All elements of a contract must abide by UK law. For example, an agreement cannot be made to fund an illegal operation
• Capacity: Both parties are competent adults agreeing to and signing a contract

The Consumer Credit Act of 1974 also applies to businesses lending money to individuals and can have additional requirements, such as stricter consumer disclosures and protection.

What happens if a lender or borrower dies?

If a lender passes away, the borrower is still responsible for paying the loan, and the payments go to the lender's estate. If the borrower passes away before paying off their loan, their estate’s assets are used to repay the outstanding debt.

Whether you are the lender or borrower, include your Loan Agreement in your Last Will and Testament to ensure any outstanding debts are appropriately addressed in the estate settlement process.

What makes a Loan Agreement invalid?

A Loan Agreement will be considered invalid if it's incomplete or the terms violate contract law. Examples of when it will be deemed invalid include:

• There are ambiguous or unfair terms in the contract
• Clauses try to enforce illegal activities
• Either party creates the document based on fraud or misrepresentation
• Either party lacks the capacity to enter into a contract

Yes, you can write your own Loan Agreement. If you want further advice or assistance, a solicitor can review your agreement before signing.

Create your agreement with LawDepot’s customisable template for a loan in England, Northern Ireland, Scotland, and Wales. 

LawDepot’s Loan Agreement template lets you draft your agreement, prompting you to include only the necessary details for a valid contract.

Determine if you’re lending or borrowing money, then follow these simple steps to complete, download, and share your PDF:

1. Give the loan details

Add essential details regarding your loan. This includes:

• Selecting the purpose of the loan
• Selecting the location where the loan is taking place
• Inputting the loan amount and key dates
• Any interest that applies to the loan, and how often it will be compounded

2. Outline the payments

Next, define how the borrower will repay the loan. This will include how often payments will be made, first and last payment dates, and a payment schedule.

LawDepot’s template allows you to add an option for early repayment of the loan, and if there are any terms for late payments. Be sure to include any late fees or interest required for late payments.

3. Identify both parties

Include both parties’ names and addresses. If there is more than one of each party, include all names applicable.

Either party can be an individual or a business. If a company is lending or borrowing money, add the legal company name to your agreement. 

Then, add any co-signers to the agreement. A co-signer is an individual or company who agrees to repay the loan if the borrower breaches the terms of the Loan Agreement.

4. Complete your document

Finally, complete your questionnaire by adding details about collateral if they apply to your loan. 

You can also add any additional details specific to your loan and determine whether a witness will be present for the signing. 

Having a witness for your Loan Agreement typically isn’t mandatory in the UK. However, it’s good practice to have a witness present. A witness can help prove the validity of signatures if a dispute occurs by testifying that both parties entered the agreement willingly. 

Alternatively, you can sign your Loan Agreement in the presence of a notary or commissioner for oaths.

Check local legislation for witnessing requirements for your Loan Agreement, especially for international purposes.