Free Download · Legal Template · Updated 2026
Free Simple Loan Agreement Template
📄 1 Template
⬇ Word (.docx)
👥 Personal Loans
⚖️ Legally Binding
🇺🇸 US All States
Download Your Free Loan Agreement Template
A complete personal loan agreement covering principal amount, interest rate, repayment schedule, default terms, and signatures. Suitable for loans between friends, family members, or individuals. Fully editable Word (.docx) file.
Simple Personal Loan Agreement
6 sections covering all loan terms. Includes lender/borrower info, principal amount, interest rate options (including zero-interest), repayment schedule, default consequences, prepayment options, and dual signature block with witness lines. Suitable for any US state.
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⚖️ Important Legal Notice
A loan agreement is a legally binding contract. For loans over $10,000, for business loans, or in situations involving complex terms or collateral, consult a licensed attorney in your state before signing. This template is suitable for simple personal loans between individuals and is provided as a starting point — not legal advice.
Lending money to a friend or family member without a written agreement is one of the most common ways relationships break down over money. A simple loan agreement protects both parties — the lender has legal recourse if the borrower doesn’t pay, and the borrower has clear documentation of the terms they agreed to.
Key rule: The IRS requires that personal loans charging below the Applicable Federal Rate (AFR) be treated as gifts for tax purposes. If you’re lending more than $10,000 interest-free, you should charge at least the minimum AFR. See the Interest Rates section below.
What the Loan Agreement Covers
| Section | What It Covers | Status |
|---|---|---|
| Lender Information | Full legal name, address, phone, email of the person lending money | Required |
| Borrower Information | Full legal name, address, phone, email of the person borrowing | Required |
| Principal Amount | Exact dollar amount being loaned | Required |
| Interest Rate | Annual percentage rate — or zero interest clause if applicable | Required |
| Loan Term | How long the borrower has to repay (months or years) | Required |
| Repayment Schedule | Monthly/weekly/lump sum, payment amount, due dates, payment method | Required |
| Late Payment Fee | Dollar amount or percentage charged for late payments | Recommended |
| Default Terms | What constitutes default and consequences (acceleration of full balance) | Required |
| Prepayment Terms | Whether borrower can pay early and if there’s a penalty | Recommended |
| Governing Law | Which state’s laws govern the agreement | Required |
| Signatures | Both lender and borrower must sign and date | Required |
| Witness Signatures | Optional but strongly recommended — makes enforcement easier | Optional |
Template Preview
Personal Loan · 6 Sections · Fully Editable
⬇ Download .docx
LOAN AGREEMENT
Simple Personal Loan Agreement — Promissory Note | Date: [Agreement Date]
[Lender Full Legal Name]
[Address, Phone, Email]
[Borrower Full Legal Name]
[Address, Phone, Email]
1. LOAN TERMS
$00,000
[X]% p.a.
[X] months
Disbursement Date
[Date]First Payment Due
[Date]Final Payment Due
[Date]2. REPAYMENT TERMS
Payment Schedule: ☐ Monthly ☐ Bi-weekly ☐ Lump Sum
Payment Amount: $[Amount] per [month/week]
Method: ☐ Bank Transfer ☐ Check ☐ Cash
Late Fee: $[Amount] if more than [X] days late
Payment Amount: $[Amount] per [month/week]
Method: ☐ Bank Transfer ☐ Check ☐ Cash
Late Fee: $[Amount] if more than [X] days late
3. INTEREST
☐ This loan bears interest at [X]% per annum
☐ This is a ZERO INTEREST loan
☐ This is a ZERO INTEREST loan
4. DEFAULT & CONSEQUENCES
Upon default, the entire remaining balance becomes immediately due and payable at the Lender’s sole discretion.
5. GENERAL TERMS
Governing Law: State of [State] | ☐ Prepayment allowed without penalty
6. SIGNATURES
Lender Signature & Date | [Printed Name]
Borrower Signature & Date | [Printed Name]
Witness 1 Signature & Name
Witness 2 Signature & Name
🟡 Yellow = replace with actual terms and names⬇ Download Full Agreement
Interest Rate Rules for Personal Loans in the US
Getting the interest rate wrong on a personal loan can have tax consequences. Here’s what you need to know:
| Loan Amount | IRS Rule | What This Means |
|---|---|---|
| Under $10,000 | No minimum interest required | You can lend zero-interest with no tax consequences |
| $10,001 – $100,000 | Minimum AFR applies (unless borrower’s income < $1,000 from investments) | Charge at least the IRS Applicable Federal Rate or the IRS may impute interest |
| Over $100,000 | AFR required | Must charge at least the AFR — imputed interest rules apply strictly |
| Any amount | Usury laws cap maximum interest | Each state sets a maximum legal interest rate — do not exceed it |
Applicable Federal Rate (AFR): The IRS publishes the AFR monthly. For 2026, short-term AFR is approximately 4–5% annually. Check IRS.gov for the current rate before drafting your agreement. Charging at least the AFR avoids the IRS treating the “forgiven” interest as a taxable gift.
Tax Implications of Personal Loans
Most people don’t realize personal loans have tax implications for both parties:
| Situation | Tax Impact on Lender | Tax Impact on Borrower |
|---|---|---|
| Interest-bearing loan (AFR or above) | Interest received is taxable income — report on Schedule B | Interest paid is generally not deductible (unless for business/investment) |
| Zero-interest loan over $10K | IRS imputes interest at AFR — you may owe tax on “phantom” interest | IRS may treat imputed interest as income gift — potential gift tax issue |
| Loan that’s never repaid | May be treated as a gift — $18,000 annual gift tax exclusion (2026) | Forgiven debt may be treated as taxable income |
| Loan documented in writing | Proves it’s a loan, not a gift — critical for IRS purposes | Protects borrower from IRS reclassifying receipt as income |
Loan Agreement Do’s and Don’ts
✓ Always Do This
- Put every loan in writing — no exceptions
- Include the exact principal amount in digits and words
- Specify the interest rate clearly (or zero-interest)
- List a repayment schedule with specific dates
- Have both parties sign in front of a witness
- Keep a signed copy — both parties should have one
- Check your state’s usury law for maximum interest rate
✗ Never Do This
- Lend money on a handshake — ever
- Charge more interest than your state’s usury limit
- Forget to specify the governing state law
- Leave out the loan term or repayment schedule
- Alter a signed agreement without a written amendment
- Lend amounts over $10K interest-free without considering IRS rules
- Skip the default and late payment sections
Frequently Asked Questions
Is a simple loan agreement legally binding?
Yes — a written and signed loan agreement is a legally binding contract in all US states. It can be enforced in court if the borrower defaults. For amounts under $10,000–$25,000 (depending on state), small claims court is typically the most practical enforcement route. Having witnesses or notarization strengthens the document’s enforceability.
Does a loan agreement need to be notarized?
Notarization is not legally required for a personal loan agreement to be enforceable in most US states. However, it adds an additional layer of authenticity and can make the document harder to challenge. For larger loan amounts or situations where you anticipate the agreement might be disputed, notarization is worth the small cost.
Can I lend money to a family member interest-free?
Yes, but be careful with amounts over $10,000. The IRS may impute interest (treat you as if you charged the Applicable Federal Rate) and tax you on interest you never received. Loans under $10,000 are generally exempt. For larger zero-interest family loans, consult a tax advisor to understand the gift tax implications.
What happens if a borrower stops making payments?
If the borrower defaults, the lender can: (1) negotiate a payment plan; (2) send a formal demand letter; (3) file a claim in small claims court for amounts under the state limit (typically $5,000–$25,000 depending on state); or (4) hire an attorney for larger amounts. Having a signed written agreement is essential for any of these options to be effective.
Should I charge interest on a personal loan to a friend?
It depends on the amount. For loans under $10,000, there’s no tax consequence to charging zero interest. For larger amounts, charging at least the IRS Applicable Federal Rate protects you from IRS imputed-interest rules. From a practical standpoint, charging even a small symbolic interest rate (1–2%) can make the loan feel more “official” and may encourage timely repayment.
What’s the maximum interest rate I can charge on a personal loan?
Each US state has usury laws that cap the maximum legal interest rate on personal loans. These range from about 6% in some states to 36% or more in others. Charging more than the state maximum is illegal and the excess interest may be uncollectable or the entire loan voided. Look up “[your state] usury law” to find the current limit before setting your rate.