Personal Loan Agreement

A Personal Loan Agreement is a legally binding contract between a lender and borrower for a private loan, often between family members or friends. The agreement documents the loan amount, interest rate (if any), repayment schedule, and what happens if payments are missed. Even between family members, a written loan agreement is important for tax purposes (the IRS may require market-rate interest), protecting relationships by clarifying expectations, and providing legal recourse if the loan isn't repaid. The agreement should specify whether the loan is secured (backed by collateral) or unsecured, consequences of default, and whether the lender can demand early repayment. Having a written agreement distinguishes a loan from a gift and provides documentation for both parties' records and tax returns.