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How To Write A Loan Agreement

Updated on June 9, 2011

How to Write a Loan Draft Introduction

A loan is a written contractual agreement. Writing a loan draft is a simple task and is unique to the requirements of the lender and borrower. It is crucial that the entire request of the parties involved is covered in written form. A Loan draft is usually writing in relation to money and property; the size of the loan would determine the amount of details and legal involvement necessary for the loan. Writing a loan draft is useful when borrowing money to friends or co-workers. Writing the loan draft secures both the lender and borrowers interest.

Step 1

Draft the amount for the loan. This is the principle loan of money being given to the borrower. For example "The amount of loan will be $( ). The loan will be paid to bank and name indicated in the terms."

Step 2

Write an interest rate. This is the percentage of interest on the principal loan amount. Pen down the formulae which is Interest equals Principal multiplied by Rate multiplied by Time. (See Resource 1 for calculator). For example write "The loan will be repayable at an interest of 3.14 percent."

Step 3

Write the repayment terms of the loan; this is the repayment plan such as weekly or monthly payments and the method of repayment; this could be direct debit or a cash exchange. A recommended method of payment is monthly direct debit to the lenders primary account.

Step 4

Write the type of loan being drafted. For example choose between a secure or unsecured loan. This can be written like this "An unsecured loan of the amount of $3500 will be paid under the terms of the agreement."

Step 5

Write the signature loan agreement. This is the part where the parties involved sign the agreement. This is provided with a written statement confirming everything that has been agreed.
Here is an example:
"The borrower acknowledges and agrees that interest at a rate of _______percent) per month shall accrue on any outstanding amount and that repayment shall first be applied to interest and thereafter to the principal amount." (See Reference 1)

Step 6

Document the date of the loan, the repayment period and the loan deadline. Write the date under each paragraph of the loan with this a simple date format for instance use: MM/DD/YY.

Step 7

Write down the loan clause. Charges can be added to the agreement if the agreed dates are not met by the borrower.
This can be written like this "You are liable to pay an incurring charge of $12 each week as a late payment fee"

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