Personal Loan Agreement


All of us have gone through the plight of financial struggles. Our income is not always enough to sustain our home and school expenses and that alone is frustrating enough. That’s why the option to get a personal loan is made available by banks and financial institutions. But before we get approved for a personal loan, we have to sign a personal loan agreement first. This type of agreement lays out the terms and conditions that the borrower has to abide by in order to get a personal loan. To know the comprehensive content of this agreement, continue reading below. Read More

What Is a Personal Loan Agreement?

A personal loan agreement is a legally binding document that is used to bind the borrower to the terms and conditions regarding the loan. This agreement is made to ensure that the borrower pays on time with accrued interest. The lender may be a financial institution, a bank, or an individual. Moreover, the interest is computed per annum.

According to Finder, about 34% of Americans have gotten personal loans. And the top reasons for getting personal loans are vehicles, bills, emergencies, tuition fees, and consolidating debt. Moreover, 36% of males have acquired a personal loan as compared to 33% of the females. Furthermore, personal loans are primarily used for consumption rather than investment. And since 2008, personal loans have risen and are expected to rise until 2029.

How to Create a Personal Loan Agreement?

A personal loan agreement can get quite complicated. But fret no more, because we have prepared helpful tips for you below to create one:

1. Identify Both Parties

The first and primary step to creating a personal loan agreement is to identify both parties. Indicate the full names and the mailing addresses of the borrower and the lender. The lender can be the name of the company representative, the company name, or both. Lastly, verify the identity of the borrower by securing a government-issued identification card.

2. Detail the Loan Amount and Payment Terms

Indicate the loan amount both in words and in digits. The payment terms should indicate that the payment is on an installment basis and is payable on what designated date. Indicate whether the payment is to be paid on a weekly or monthly basis. If you have another option, you can also indicate it beside the extra checkbox.

3. State the Interest and Payment Instructions

No banks and financial institutions offer an interest-free loan—but, if your bank or financial institution is an exception, state it so. State the interest rate in words and in figures to be clearly understood by the borrower. But remember: the interest rate you impose must be aligned to your state’s maximum usury rate. After that, list the payment instructions for the borrower.

4. Include Any Late Fees and Security

Late fees are common when getting a personal loan. Indicate any late fees you want to impose on the borrower if you allow one. For the security provision, ask the borrower for the real or personal property as security or collateral for the unpaid amount. If the said property does not reach the unpaid amount, then the borrower still has an obligation to pay the remaining amount.

5. Include Other Additional Provisions

Include other additional provisions regarding the loan such as the prepayment, remedies, acceleration, subordination, waivers by borrower, expenses, governing law, and successors. These provisions must be explicitly stated to avoid confusion on the borrower’s end. And these provisions must be governed by the state where it operates.

6. Sign the Agreement

Once everything has been secured and the additional provisions have been provided, sign the agreement with the borrower and the witness. You can research about your state laws if the document needs to be notarized or not. Provide a copy for the borrower for their personal record.

Frequently Asked Questions

Do I need to notarize the personal loan agreement?

It depends on the state that you belong to. Some states do not require you to notarize the legal document but it is highly recommended. A notarized personal loan agreement makes the whole thing official. It also helps you avoid legal complications.

What are the five types of personal loans?

a. Fixed-Rate- when the interest rate remains the same throughout the course of the repayment period.

b. Variable Rate- when the interest rate is bound to a third party.

c. Co-Sign- when the borrower has undesirable credit and needs someone else to pay.

d. Secure- In case of default, the borrower needs to put collateral as payment security.

e. Unsecured- The borrower does not need to put collateral but in case of default, their personal assets may be confiscated legally.

Are personal loans a good idea?

Yes, personal loans can be a good idea if you have excellent credit. But if your credit is below satisfactory, there is a possibility that your interest rate will be so high—even higher than credit card rates.

What is the most ideal reason for getting a personal loan?

Paying off your credit cards is one of the most ideal reasons for getting a personal loan. You may be offered a low-interest rate and low-interest rates, the amount of interest you pay and the time it takes to pay off your credit are reduced.

What is considered financial hardship?

According to, loss of income, divorce, death, injury or illness, change of employment status, natural disasters, and military deployment are considered examples of financial hardship.



Banks and financial institutions even understand what it means to be empty-handed. It is difficult to get by especially if your personal needs and obligations are not met because of financial shortage. But banks and financial institutions are clever enough to secure the money and not get played. And this personal loan agreement is the perfect instrument to avoid being taken advantage of. With the huge amount of money being loaned, it’s wise to hold the borrower liable from the beginning. Help secure your money now with a personal loan agreement.