A personal loan agreement is usually between two parties who could be friends, relatives or in a work related relationship. Even though oral contracts are enforceable, it is always a good idea to get the agreement in writing in order to clarify the terms of the agreement. A written agreement also serves to protect against extenuating circumstances leading to non-payment, such as a declaration of bankruptcy by the borrower, or in the event of death or illness on either side.
Before writing the agreement, it should be arranged for all involved parties to be present. It is favorable to make the agreement in person and have each party go over the written document in order to clarify any ambiguities with regards to the terms of the agreement.
The personal agreement form created should to be legibly written, or preferably typed, and should identify the lender and include the date and amount of the loan. The legal name and address of the borrower and any co-signers should also be included.
The time-frame within which the loan is to be paid back should be established and recorded, along with whether the money will be paid back in cash, by check or through some other means. If collateral (property or assets) is part of the loan, then it should be included within the agreement. Any consequences in the event that the loan is not paid back properly are to be established within the agreement.
All further details which are significant and relevant to the agreement should be written down. Covering all details serves to clarify the terms of the agreement and makes it easier for both the parties to keep to their end of the bargain.
Once the agreement has been finalized, both parties are required to sign the agreement. Signatures of any co-signer can be added, if necessary. At least one witness should be present at the time of the agreement and his signature should also be included.
As a further precaution, especially in the event that the loan is being made to someone outside the family, the agreement can be notarized by a public notary. In this case, the sign or seal of the public notary is to be affixed on the agreement once everyone has signed and the loan has been provided by the lender.
Copies of the loan agreement should be provided to the borrower and co-signer. The original signed and notarized personal loan agreement should be kept in a secure place by the lender.