Writing a Loan Agreement between Friends [with Sample]

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When one friend agrees to provide goods, services or money to another friend the payment agreement letter is an indispensable component of the transaction. 

This document clearly and legally defines the agreement between the friends and may be used as evidence in a lawsuit if one of the friends fails to uphold their side of the bargain.

Don’t Have To Be Long Or Complicated

These documents don’t have to be long or complicated. However, it’s essential that they include a few basic elements so that the terms can be understood and interpreted by anyone who reads them. 

For instance, the friend loaning the money may require that the borrower pay them back with a cashier’s check while prohibiting the use of a personal check. Moreover, the agreement may define what sort of penalty is involved if the money is not paid back as agreed upon.

Interest Rates

Interest rates are not always a part of these agreements. If the borrower will be required to pay interest, then this should be defined in the agreement, including how the interest will be calculated.

It is strongly recommended that the agreement be notarized or at least witnessed and signed by an impartial third party. 

This makes the agreement easier to defend in court, and makes it less likely that the document will be tampered with later. Each party to the agreement should receive a fully-executed copy for their files.

Level Of Detail

This level of detail is necessary for the protection of both friends because it makes it far less likely that disputes will arise. 

The promisor, the friend borrowing the money, receives the assurance that the payee, the friend loaning the money, will not claim that the loan was actually for a much larger amount. 

Moreover, the written agreement makes it possible for the payee to prove that the promisor had a well-defined payment plan and that they did not comply with the schedule.  

Accordingly, it is less likely that litigation will arise from a dispute, and if litigation does occur, then the agreement may be what the court relies upon to make a decision.

A single page document is all that is required to make a binding payment agreement letter. The following example is a template that can be easily customized to suit a variety of transactions.

Sample Loan Agreement Between Friends

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

Frequently Asked Questions (FAQs)

1. What is a loan agreement between friends?

Answer: A loan agreement between friends is a legally binding document outlining the terms and conditions of a loan that is being made between two individuals who are friends.

2. Why is it important to have a loan agreement between friends?

Answer: Having a loan agreement between friends is important because it helps to clearly define the terms of the loan, including the amount being borrowed, the repayment schedule, and any interest or fees that may be charged. It also helps to protect both parties in case of a dispute.

3. What should be included in a loan agreement between friends?

Answer: A loan agreement between friends should include details such as the amount of the loan, the repayment schedule, any interest or fees that may be charged, and any collateral that may be used to secure the loan. 

It should also include the names and contact information of both parties and any other relevant terms and conditions.

4. Are there any legal requirements for a loan agreement between friends?

Answer: There are no specific legal requirements for a loan agreement between friends, but it is still a legally binding contract and should be enforceable in a court of law. It is important to make sure that the loan agreement is in writing, and both parties should sign it.

5. What happens if one party fails to repay the loan according to the terms of the loan agreement between friends?

Answer: If one party fails to repay the loan according to the terms of the loan agreement between friends, the other party may take legal action to recover the funds. 

This could include taking the borrower to court or garnishing their wages. It is important to have a clear repayment schedule and agreement in place to avoid any confusion or disputes.

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