Free Personal Loan Agreement Template
A personal loan agreement documents a loan between two individuals — whether friends, family members, or acquaintances. It records the loan amount, interest (if any), repayment terms, and what happens if payments are missed, protecting both lender and borrower.
The Borrower warrants that the Loan shall not be applied for any unlawful purpose and (where relevant) that the Borrower has the legal capacity to enter into this Agreement.
The representative APR applicable to the Loan is 4.6% APR, calculated in accordance with the Consumer Credit (Total Charge for Credit) Regulations 2010.
Interest shall be payable together with each monthly instalment. No interest shall accrue on amounts not yet advanced.
Each instalment shall be applied first in discharge of any costs or fees lawfully payable, secondly in discharge of accrued interest, and thirdly in reduction of the outstanding principal. The final instalment shall include any balancing amount necessary to discharge the Loan in full.
On the occurrence of an Event of Default, the Lender may, by written notice to the Borrower, declare the entire outstanding balance of the Loan (together with all accrued interest and any unpaid charges) immediately due and payable.
Any sum not paid by its due date shall bear late payment interest at 8% per annum above the Bank of England base rate from the due date until payment in full, accruing daily and compounding annually. The Lender shall also be entitled to recover all reasonable costs and expenses of enforcement, including legal costs on an indemnity basis, subject to the court's discretion.
Variation: No variation of this Agreement shall be effective unless in writing and signed by both parties.
Severability: If any provision is found to be unenforceable, the remaining provisions shall continue in full force and effect.
Notices: Any notice shall be in writing and delivered personally, sent by pre-paid first-class post, or sent by email to the party's address set out above.
Third-Party Rights: A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.
Limitation: The limitation period applicable to any claim under this Agreement is six (6) years from the date on which the cause of action accrued, in accordance with section 5 of the Limitation Act 1980.
What Is a Personal Loan Agreement?
A personal loan agreement is a written contract between a private lender and a private borrower (both individuals, not businesses) setting out the terms of a loan. It covers how much is being lent, whether interest is charged, how and when the loan will be repaid, and the remedies available if the borrower defaults.
Unlike a simple IOU, a personal loan agreement is a detailed contract that addresses potential issues upfront — interest calculations, early repayment, late fees, and dispute resolution. This level of detail is appropriate for larger sums or longer repayment periods.
Documenting personal loans in writing is especially important within British families. A written agreement distinguishes a loan from a gift under UK inheritance tax rules, and provides clarity if relationships change or the lender dies before the loan is repaid.
What's Covered in This Template
Our personal loan agreement template covers all the terms needed for a clear, enforceable arrangement:
Lender Details
Full name and address of the person lending the money.
Borrower Details
Full name and address of the person borrowing the money.
Loan Amount
The principal sum being lent, in figures and words.
Interest Rate
The annual interest rate (if any) and how interest is calculated.
Repayment Schedule
Monthly, weekly, or lump-sum repayments with specific amounts and dates.
Loan Term
The duration of the loan and final repayment date.
Early Repayment
Whether the borrower can repay early without penalty.
Late Payment
Consequences of missed or late payments, including any late fees.
Default and Remedies
What happens if the borrower fails to repay — acceleration, court action, etc.
Signatures
Dated signatures of both parties, with optional witness signatures.
How to Create a Personal Loan Agreement
Follow these steps to document a personal loan properly:
- 1
Agree the Key Terms
Discuss and settle on the loan amount, interest rate (or confirm it is interest-free), repayment frequency, and loan duration before drafting.
- 2
Document the Parties
Record both parties' full legal names, addresses, and contact details.
- 3
Set the Repayment Schedule
Be specific about amounts, due dates, and payment method. Align repayment dates with the borrower's income cycle if possible.
- 4
Address Default
Include a clear clause explaining what happens if payments are missed — for example, written notice followed by the full balance becoming due.
- 5
Sign and Keep Records
Both parties sign and date the agreement. Keep copies and retain bank statements showing the transfer of funds.
Legal Considerations
Personal loans between individuals in England and Wales are governed by contract law, with some interactions with consumer credit and tax legislation.
This template is for informational purposes only and does not constitute legal advice. Consult a qualified solicitor for advice specific to your situation.
Reviewed for England & Wales law
Consumer Credit Act 1974
If an individual regularly lends money (as a business) in the United Kingdom, they may need to be authorised by the Financial Conduct Authority under the Consumer Credit Act 1974. Occasional, genuine personal loans between British friends or family are generally outside the Act's scope, but regular lending for profit crosses the line under English law.
Tax Implications
The loan itself is not taxable for the borrower in the UK. However, if the lender charges interest, the interest income is taxable and must be declared on the lender's UK self-assessment return. Interest-free loans to family members may have British inheritance tax implications if the lender dies within seven years.
Limitation Period
Under the UK Limitation Act 1980, the lender has six years from when a payment was due to bring a claim for recovery in England and Wales. If the loan agreement is executed as a deed, the limitation period extends to twelve years.
Gifts vs Loans
Without a written agreement, HMRC or family members may dispute whether money was a loan or a gift under United Kingdom law. This is particularly relevant for UK inheritance tax, gifted deposit purposes, and family disputes. A clear loan agreement removes this ambiguity.
Frequently Asked Questions
Document Your Personal Loan
Use our free template to create a clear personal loan agreement. Protect your money and your relationship with proper written terms.
Free · Instant PDF · No account required