Writing a Simple Personal Loan Agreement between Friends (with Samples)

Loaning money can sometimes be the culprit behind a dissolving friendship between two friends. Therefore, if you’re borrowing from or lending money to a friend, think about your relationship first. Money will always come and go, but once a friendship is destroyed, sometimes it’s gone forever.

If you must borrow money from a friend, it’s best to put your friendship aside and simply think of it as a business deal among friends and draft an official money loaning agreement with all the details that surround the transaction. In other words, it must be clearly represented as a legal loan agreement letter. It will make the agreement more serious overall.

Legal Protection

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. 

Also, it’s best have the letter signed in front of a notary, even though it may require a small fee in most cases. If this isn’t possible, then at least have witnesses sign the letter. Also, it’s important that both parties each have a copy of the agreement.

If you want to keep your relationship intact, follow these steps to ensure that everything goes as planned and the loan is paid back as intended.

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

The first paragraph should clearly identify the name of the lender and borrower along with the amount of money loaned and the date when the loan was originally made. For example, Darci Barton loaned Sandy Smith the amount of $2,500 on March 1, 2015.

2. Include The Loan’s Interest Rate

Agree upon an interest rate regarding the loan as well as the exact method you intend to use in order to calculate the interest of the loan. Alternatively, if both parties agree there will be no interest charged, be sure to include that in the terms of the loan as well.

3. Outline The Repayment Terms Of The Loan

Clearly outline the loan’s repayment terms in detail. Often, these kinds of loans are repaid immediately after the borrower receives a significant lump sum of money following a financial event, such as a lawsuit settlement or tax refund. If this is the case, be sure to include those specific details concerning the exact event that will trigger the due date.

On the other hand, if payments will be made for repaying the loan, include a detailed description of the repayment schedule, including the beginning date and final payment date as well as the amount of each payment.

4. Officially sign and date the agreement

Both parties need to sign and date the formal document along with a third-party witness if possible. The witness doesn’t have to be a friend or family member. In fact, they should preferably NOT have a relationship with either party. 

For instance, an employee at your local bank is an excellent choice to use as a third-party witness since they have zero vested interest in how the loan is collected or in the loan itself. There’s also the option to have it notarized by an official notary public as well.

Sample 1 – Loan Agreement Letter Between Friends

Sarah Brown (borrower)
Tammy Smith (lender)
Original Loan Date: March 25, 2019
Entire Repayment Due: March 25, 2021
Total Amount of Loan: $2,500

TERMS OF LOAN AGREEMENT LETTER:

I, Sarah Brown, borrowed $2,500 from Tammy Smith on March 25, 2019. Tammy Smith and I both agree that the loan will be repaid using a series of scheduled financial payments.

I, Sarah Brown, will submit a monthly payment due on the 1st of every month using a personal check in the amount of $104.20 to Tammy Smith. The first payment will be made on April 25, 2019 and the last payment will be made on March 25, 2021.

I, Sarah Brown, agree to a $5 late charge per day for any payments that are late until the entire loan is paid in full on March 25, 2021.

Both parties agree to the terms surrounding the said loan.

Signed and dated today on March 25, 2019.

(Sarah Brown’s signature)
Sarah Brown
(Tammy Smith’s signature)
Tammy Smith

Sarah Brown
2130 Lucky Rd.
Dixon, MD 20009
sarahbrown@gmail.com
(454) 815-8444

Tammy Smith
1908 Morris Rd.
Dixon, MD 20008
tammysmith@gmail.com
(454) 805-7523

Mary Benson (third-party witness)
Trust and Loan Bank representative
428 South Ave.
Dixon, MD 20007
(604) 895-4147

Sample 2 – Letter of One Lump Sum Payment

Andrew Jones (borrower)
Ben Bradley (lender)
Original Loan Date: April 2, 2019
Entire Repayment Due: May 2, 2019
Total Amount of Loan: $2,500

TERMS OF LOAN AGREEMENT LETTER:

I, Andrew Jones, borrowed $2,500 from Ben Bradley on April 2, 2019. 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, 2019.

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, 2019.

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

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

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

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