Free Loan Agreement Letter between Friends [Samples]

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Loaning money can sometimes be the cause of a friendship between two friends disintegrating. As a result, whether you’re borrowing money from somebody, consider your connection first. Money comes and goes, but once a friendship is shattered, it can be lost forever.

business transaction between friends?

If you need to borrow money from a friend, it’s advisable to set your friendship aside and treat the transaction like a business transaction between friends, drafting a formal money loan agreement with all the relevant data. 

To put it another way, it needs to be clearly labeled as a formal loan agreement letter. It will raise the overall seriousness of the deal.

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.

It’s also a good idea to have the letter signed in front of a notary, even if it costs a little money in most circumstances. If this isn’t possible, have witnesses sign the letter at the very least. It’s also critical that both parties have a copy of the contract. 

Follow these procedures to ensure that everything goes according to plan and the loan is paid back on time if you want to keep your relationship intact.

1. Clearly Identify Both Parties As Well As The Details Of The Loan

The names of the lender and borrower, as well as the amount of money borrowed and the date the loan was made, should all be clearly stated in the first paragraph. Darci Barton, for example, gave Sandy Smith a $2,500 loan on DATE.

2. Include The Loan’s Interest Rate

Agree on a loan interest rate as well as the method you’ll use to calculate the loan’s interest. Alternatively, if both parties agree that no interest will be paid, make sure to include that in the loan’s terms.

3. Outline The Repayment Terms Of The Loan

Clearly spell out the terms of the loan’s repayment. These loans are frequently repaid as soon as the borrower receives a large lump sum of money as a result of a financial event, such as a lawsuit settlement or a tax refund. If this is the case, make sure to give all of the specifics about the specific event that will set the due date.

If payments will be made to repay the loan, however, include a thorough description of the repayment schedule, including the start and end dates, as well as the amount of each installment.

4. Officially sign and date the agreement

The formal document must be signed and dated by both parties, with a third-party witness if available. It is not necessary for the witness to be a friend or family member. In fact, they should avoid having any contact with any party.

An employee at your local bank, for example, is an ideal third-party witness because they have no vested interest in how the loan is collected or in the loan itself. It’s also possible to get it notarized by a notary public.

sample 1 – Loan Agreement Between Friends for monthly payments

Full, legal name of Payee
Full, legal name of Promisor

Loan Date

Total Amount of Loan
Final Due Date for Repayment

Agreement Terms:

I, Payee Name (“Payee”), borrowed $1,000 from Promisor Name (“Promisor”) on Loan Date. 

By signing this agreement both Payee and Promisor acknowledge that Payee will pay back Promisor using the following payment schedule.

Payee agrees to repay Promisor with a personal check for $100 on the first of each month for 10 months beginning with January 1, 20__. 

The last payment will be made October 1, 20__, at which time the loan will be fully repaid.

Payee further agrees to pay a $35 per week late charge for every week that payment is delayed after the first of the month. 

This $35 late charge may be prorated as a $5 per day charge for each day that the payment is late for segments of time shorter than seven days.

Both Payee and Promisor agree to the payment agreement defined above.

Signature of Payee with Date
Signature of Promisor with Date
Signature of Witness or Notary with Date

sample 2 – Loan Agreement Letter Between Friends for lump sum

Andrew Jones (borrower)
Ben Bradley (lender)
Original Loan Date: April 2, 2022
Entire Repayment Due: May 2, 2022
Total Amount of Loan: $2,500


I, Andrew Jones, borrowed $2,500 from Ben Bradley on April 2, 2022. I will repay the loan in one lump sum when I receive my income tax refund

I, Andrew Jones, promise to repay Ben Bradley the entire amount of $2,500, using a personal check on May 2, 2022.

I also agree to pay a $5 late fee per day if I fail to make the agreed upon one lump payment on May 2, 2022.

(Andrew Jones’ Signature)
Andrew Jones
(Ben Bradley’s Signature)
Ben Bradley

Andrew Jones
3100 Dusty Rd.
New Brunswick, NJ 64856
(954) 895-8744

Ben Bradley
1558 Johnson Rd.
New Brunswick, NJ 64856
(354) 895-7823