Everything You Need to Know About a Loan Agreement
A loan agreement is a legally binding document that outlines the terms under which one party lends money to another. It protects both the lender and borrower and ensures clarity in repayment terms, interest, and consequences of default.
What is a Loan Agreement?
A loan agreement is a written contract that defines the obligations and expectations between a lender and borrower. It can be used for personal loans between friends or family, business loans, or even formal bank lending. A proper loan agreement includes details like loan amount, interest rate, repayment schedule, collateral (if any), and what happens in case of non-payment.
A well-drafted loan agreement isn't just a formality—it's your financial safety net.
Why You Should Never Skip a Loan Agreement
Many people overlook formal agreements when lending or borrowing from acquaintances. But even friendly transactions can go wrong. A signed loan agreement offers legal protection, prevents misunderstandings, and provides documented proof in case of disputes. Whether the loan is interest-free or collateral-backed, every detail should be captured in writing to ensure transparency.
This video breaks down the essentials of a loan agreement—explaining key clauses, common mistakes to avoid, and how to make your document legally valid and enforceable.
Must-Have Clauses in a Loan Agreement
Full names and addresses of the lender and borrower.
Loan amount, interest rate, and repayment schedule.
Terms of default and legal consequences.
Collateral details, if applicable.
Signatures of both parties and optional witness or notary.