Friends Loan Template

Lending money to a close friend is a tricky task, but a lot can be done to remove any future tension that might arise, such as making sure that a reasonable loan agreement was set into place up front. By agreeing to the terms of a loan before money exchanges hands, friends can avoid an uncomfortable situation later where one party realizes he had different expectations than the other. This clarity up front will ultimately help to protect the friendship.

Get Terms It In Writing

The lender doesn’t have to act like a bank or lawyer, but documenting the terms of the loan in writing is certainly an important step. Make sure that the loan agreement is in writing, whether typed neatly or in print. Once the document is finished and signed, it can be copied for each party for future reference. This will be valuable down the road when memories fade and to keep expectations of both parties on track.

What To Include in a Loan Agreement

When drafting the document, there are certain terms that should be included. The name of the lender and borrower, the term of the loan with the date of the loan and the date of the final payment, the interest rate, the schedule of payments with amounts and dates, and the per day fee or flat fee that would apply to a late payment must all be addressed. Finally, make sure the document is signed. These are the basic requirements needed to cover your bases. 

Things to Consider

Unlike a loan with a bank, a loan to a friend can be personal, but there are some things for you to consider carefully. First of all, the use of the money is up to the borrower, so if they buy something that you don’t fully approve of that’s really not your business. Keep your interest in the loan and payment schedule that was agreed to.

Also, you should have addressed how to handle a late payment but make sure the lender is ready to deal with that event should it occur. A missed payment can easily turn into two, so deal with this issue head-on if it occurs by getting back on track or adjusting the payment schedule if needed. The friendship will be better off for it.

Sample Loan Agreement Between Friends

Here is a very brief example that can help you to draft a written agreement. It follows the pattern of detailing the amount, parties involved, date of the loan, interest rate, payment schedule, and late fee.

LOAN AGREEMENT: A loan of $5,000 has been made from John Doe (lender) to Jane Doe (borrower) on January 1, 2014 with an annual interest rate of 5%. The loan will be repaid by personal check in monthly installments of $219.36 beginning February 1, 2014 with a final payment on January 1, 2016. A late fee of $25 will be due with any payment that is made more than 10 calendar days after the due date.

How to Sign a Private Loan

In addition to the terms stated above, a signature is a very important inclusion on the document. The act of signing makes the agreement seem settled and official. In the signature section, be sure to include each person’s legibly printed name, signature, and written date of the signing. Many people will go even further and have a third party or even notary public witness and sign the document. This step may even afford the lender a bit more clout in the event of an unfortunate default.

Lending Between Friends

There are cases where lending money between friends is very beneficial and can help you or your friend out, but it’s important to do it correctly to improve the chances of a successful transaction and a lasting friendship. By drafting and signing a proper loan agreement that clearly identifies the terms of the loan, you can clarify expectations and avoid the pitfalls that can come from verbal agreements which could damage the relationship.