Free Loan Agreement Templates

A loan agreement is the contract between someone lending money and someone borrowing it. It records how much, at what interest, repaid how and by when, what happens if payments stop, and what security — if any — stands behind it. The free templates below are editable MS Word files suited to private lending between individuals, families, and small businesses. Beneath them you’ll find every key clause explained, a worked repayment schedule, and the questions worth settling before money changes hands.

Loan Agreement or Promissory Note?

Both record a debt, and which you need depends on how much machinery the arrangement requires:

• A promissory note is a one-sided promise. The borrower signs, the lender keeps it, and it states the amount, the interest, and the repayment terms in a page or less. Ideal for a simple private loan.
• A loan agreement is a mutual contract. Both parties sign, and it can impose obligations on the lender as well as the borrower — conditions to be met before funds are released, ongoing requirements during the term, and detailed provisions for what counts as default.

Use a note where the arrangement is “here is some money, pay it back like this.” Use an agreement where there’s security involved, a guarantor, staged drawdowns, a business purpose, or an amount large enough that both sides want the fine detail written down. Larger transactions often use both — an agreement setting out the relationship, with a note evidencing the debt itself.

What a Loan Agreement Must Contain

• The parties — full legal names and addresses of lender and borrower. Where either is a company, the registered name and number.
• Principal — the amount lent, in figures and words, and the date it will be advanced.
• Purpose, where it matters — business loans often restrict what the money may be used for, and a breach of that restriction can be a default event.
• Interest rate — the annual rate, whether it’s fixed or variable, and how it’s calculated (simple or compound, and on what day-count basis). If the loan is interest-free, state that explicitly rather than leaving the clause blank.
• Repayment terms — instalment amount, frequency, first and last payment dates, and the payment method. Attach a schedule (see below).
• Prepayment — whether the borrower may repay early, whether any penalty applies, and how early payments are applied (usually to accrued interest first, then principal).
• Late payment — the grace period, any late fee, and any default interest rate.
• Events of default and acceleration — see below.
• Security — any collateral, described precisely, and what the lender may do on default.
• Guarantor, where there is one, with their obligations set out in full.
• Assignment — whether the lender may transfer the loan to a third party, and whether the borrower’s consent is needed. Borrowers generally cannot assign their obligations.
• Governing law, notices, and the signature block — with witnesses or notarization where your jurisdiction requires it.

Loan Agreement Structure at a Glance

The Repayment Schedule

The attachment that turns an agreement into something both sides can follow. It shows each payment, how much of it is interest, how much reduces the principal, and what’s left — which prevents the most common private-lending dispute, where the borrower believes they’ve nearly finished and the lender’s figures say otherwise.

Here’s the first months and the last of a 5,000 loan at 6% annual interest over twelve monthly instalments:

Two things worth noticing. The interest portion falls with every payment, because interest is charged on the reducing balance — which is why early payments barely dent the principal and late ones almost entirely repay it. And the total interest is stated: 163.96 on a 5,000 loan. Putting that figure in front of both parties before signing prevents a conversation later about what the loan “really” cost.

Free Loan Agreement Templates in MS Word

Each template below is editable in Word. Complete every bracketed field, attach a repayment schedule, and have both parties sign and keep a copy.

Events of Default

This is the clause a loan agreement has and a simple note usually doesn’t, and it’s worth spending five minutes on. An event of default is anything that entitles the lender to demand the full outstanding balance immediately rather than waiting for the remaining instalments.

Typical triggers:

• Missing a payment — usually after a stated grace period and written notice.
• Insolvency or bankruptcy of the borrower.
• Breach of another term — using the money for a prohibited purpose, failing to insure secured property, or selling the collateral.
• A materially false statement made when the loan was applied for.
• Death of the borrower, where the loan is personal — though in practice the debt usually passes to the estate rather than disappearing.

Pair the list with a cure period: a stated number of days after written notice within which the borrower can put things right before acceleration applies. It’s fairer, it’s usually more effective at recovering the money than immediate enforcement, and an agreement without one can look harsh if it’s ever examined.

Guarantors and Security

A guarantor promises to repay if the borrower doesn’t. It’s common in family lending — a parent guaranteeing an adult child’s loan — and it’s a serious commitment that should never be treated as a formality. Name the guarantor in the agreement, set out exactly what they’re guaranteeing (the whole debt, or a capped amount), and have them sign. Anyone being asked to guarantee a loan of any size should take their own advice first.

Security gives the lender a claim over specific property if the borrower defaults. Describe the asset precisely — make, model, VIN, serial number, or a legal description for land — and state what the lender may do.

One point that catches private lenders out: writing “secured on the borrower’s car” in the agreement does not, by itself, give you a claim that beats other creditors. Protecting security generally requires a registration step — a lien recorded against a vehicle title, a filing on a public register, or a registered mortgage over property — and the mechanism varies by jurisdiction and asset type. If security is the reason you’re comfortable lending, take advice on perfecting it before you transfer the money.

Lending to Family and Friends

Most people arriving at a loan agreement template are lending to someone they know, so it’s worth being direct about it.

Decide first whether it’s a loan or a gift. This is the single most useful conversation, and the one people avoid. If you would be genuinely unbothered never to see the money again, consider calling it a gift — the relationship survives a gift far better than it survives an unpaid loan. If you do need it back, say so plainly and write it down.

Write it down anyway. The objection is always that a document seems distrustful. In practice most family lending disputes aren’t about dishonesty — they’re about two people remembering different terms in good faith. Was there interest? When was it due? Was the 500 in March a repayment or a separate gift? A one-page agreement answers all of that permanently.

Agree what happens if they can’t pay before it happens rather than after. A payment holiday, a reduced instalment, an extended term — deciding in advance turns a crisis into a clause.

Don’t lend what you can’t afford to lose, and don’t borrow against your own position to do it. A private loan has no recovery mechanism worth the name until you’re prepared to go to court against someone you care about, which most people never are.

Three practical habits: record every payment and give the borrower a receipt, keep the original agreement with the lender, and when the loan is cleared, mark it paid in full, date and sign it, and give the borrower a copy. That last step closes the matter cleanly.

Frequently Asked Questions

What is a loan agreement?

A contract between a lender and a borrower setting out the amount lent, the interest, the repayment schedule, what happens on default, and any security or guarantee. Both parties sign it, and each keeps a copy.

What is the difference between a loan agreement and a promissory note?

A promissory note is a short, one-sided promise by the borrower to repay. A loan agreement is a mutual contract that can place obligations on both parties and typically includes fuller default, security, and guarantee provisions. Notes suit simple private loans; agreements suit larger or more complex ones.

How do I write a simple loan agreement?

Name both parties, state the principal in figures and words, set the interest rate and how it’s calculated, set out the repayment instalments and dates, define what counts as default and what happens then, and have both parties sign and date it. Attach a repayment schedule so the figures are agreed in advance.

Does a loan agreement need to be notarized or witnessed?

Usually not for validity, though requirements vary and some jurisdictions require it where property is used as security. A witness or notarization makes the signature much harder to dispute later, and for family loans it costs little and settles a lot.

Can I charge interest on a loan to a friend or family member?

Generally yes, but rates are capped by usury laws in many places, interest received is often taxable income, and in some jurisdictions an interest-free or below-market loan can itself have tax consequences. Check both before setting a rate.

What happens if the borrower stops paying?

The agreement’s default clause applies — typically written notice, a cure period, and then acceleration making the whole balance due. From there the lender can demand payment, enforce any security, or sue on the agreement. Where the borrower is family, an agreed variation usually recovers more than enforcement does.

Should a loan agreement include a repayment schedule?

Yes. It shows each payment, the interest portion, and the reducing balance, so both sides agree from the outset what is owed and when. It also makes the total cost of the loan explicit, which prevents arguments later about what the borrowing actually cost.

Pete Smith

Pete Smith is a Business Management graduate and a passionate advocate for practical, accessible resources that empower professionals and entrepreneurs to succeed. With a strong foundation in organizational strategy and operational efficiency, Pete combines academic knowledge with real-world insights to simplify complex business processes. He is the creator behind a growing online platform dedicated to offering free, high-quality documents, templates, and actionable tips designed to save time and improve productivity.