Personal Loan Agreement Solicitors
Are you considering lending money to a friend or family member? Or perhaps you’re looking to borrow money and want to make sure everything is clear between you and the lender.
Loan agreements should be used in all lending situations, even between friends and family, because they help prevent disputes by clearly outlining the terms and conditions of the loan.
At Lawhive, our network of personal loan agreement solicitors can draft a personal loan agreement that clearly outlines the terms of the loan or review and advise on the agreement.
Contact our legal assessment team today for a free quote for the services of a personal loan agreement solicitor.
What is a personal loan?
A personal loan is a sum of money borrowed for various purposes, like consolidating debt, making home improvements, or covering unexpected expenses.
A personal loan is different from a standard loan as the money borrowed can be used for any purpose, rather than a specific one.
What is a personal loan agreement?
A personal loan agreement is a legally binding written contract between a lender and a borrower. It includes information like the loan amount, repayment terms, and what happens if the borrower defaults.
Regardless of the lender’s identity, whether a bank, financial institution, or an individual, a loan agreement is legally binding.
What are the different types of loan agreements?
Co-signing
Co-signing involves someone else being liable for the loan if the borrower fails to pay. This is common when the borrower has poor or no credit. The person liable for the loan if the borrower fails to pay is commonly known as a guarantor.
Fixed Rate
With a fixed-rate loan agreement, the interest rate remains the same throughout the repayment period, providing stability and predictability for borrowers.
Secured loans
With a secured loan, the borrower provides collateral (e.g. their property or vehicle) to back the loan. This collateral serves as security for the lender if the borrower defaults on their repayments.
Unsecured loans
Unsecured loans do not require the borrower to provide collateral. However, if the borrower fails to repay the loan, legal action may be taken against them which could include assets like a vehicle or property being seized and sold to cover the debt.
Variable rates
In variable-rate loan agreements, interest rates change based on external factors. This means repayments over time may vary depending on these external factors and the amount of interest added.
Personal loans are most commonly unsecured. However, they can be secured with collateral providing this is written into the personal loan agreement.
When would you use a personal loan agreement?
Personal loan agreements are commonly used between family members or close friends. For example, a family member might lend money to another family member to help with expenses, like buying a car or paying for education.
In this situation, a personal loan agreement helps formalise the terms, manage expectations, and protect both the lender and borrower.
What’s included in a personal loan agreement?
Most personal loan agreements include:
Borrower and lender details
The amount of money being lent by the borrower
The rate at which interest will accrue on the loan
Any additional fees or charges, such as late payment fees
Details on how and when the borrower is expected to repay the loan, including frequency and duration of the loan term
How disputes will be resolved if they come up
Information about any collateral provided by the borrower as security for the loan.
What’s the difference between a loan agreement and a promissory note?
Both loan agreements and promissory notes serve similar purposes in that they detail a borrower’s promise to repay a debt. However, there are some key differences between the two.
Generally, loan agreements tend to be more comprehensive and involve signatures from both the borrower and the lender. In contrast, promissory notes may be more straightforward, containing only essential details about the debt and repayment terms, and may only require the borrower’s signature.
Are personal loan agreements legally binding?
Personal loan agreements are legally binding providing they are documented in writing and signed by all relevant parties. Therefore, it’s important to review the contract thoroughly before signing it.
While it is possible to find personal loan agreement templates online, each loan agreement is unique, and, as such, the paperwork which backs it up should be personalised to fit the circumstances and expectations of both parties involved.
If you’re looking for clarity in drafting, reviewing, or enforcing a personal loan agreement, a money, tax, and debt solicitor can help you.
Contact our legal assessment team to find out how Lawhive’s network of expert solicitors can help with this.
Can interest be charged on a personal loan?
Interest can be charged on a personal loan, but this should be outlined in the personal loan agreement.
Generally, interest rates on a loan are determined by the borrower’s willingness to pay and the lender’s tolerance for risk. Lenders may also adjust interest rates based on economic conditions and competition in the lending market.
However, when borrowing from family or friends, the approach to interest rates may differ. For example, they may offer a below-market interest rate or waive interest charges altogether.
It’s important to know that if you lend money to someone and charge interest on that loan, the interest payments are taxable and you must declare them to HMRC.
How to write a personal loan agreement
When arranging a personal loan, you’ll need to create a personal loan agreement.
Before doing so, it’s a good idea to agree on terms like the loan amount, interest rates, repayment schedule, and what will happen if the borrower defaults.
Although uncomfortable, it’s wise to talk about potential worst-case scenarios like this so all parties enter the agreement understanding their obligations and potential consequences.
Depending on the complexity of your circumstances, you may consider finding a solicitor to help draft your loan agreement to ensure it is legally enforceable.
Does a personal loan agreement need to be notarised?
Notarisation is the process of having a document officially certified by a qualified individual authorised by the government to witness the signing of documents.
Personal loan agreements do not have to be notarised to be legally binding. As long as the contract is signed by both the borrower and the lender, it is legally valid and enforceable.
Can the terms of a personal loan agreement be changed after it’s signed?
You can change the terms of a personal loan agreement after it’s been signed, but both parties must agree to these changes and they should be documented in writing.
How can Lawhive help?
Helping friends and family with their finances using a personal loan agreement is a noble gesture. However, it’s important to protect your interests and ensure the agreement is put in writing. It is not uncommon for disputes to arise in these situations, which can seriously damage relationships if they can’t be ironed out.
At Lawhive, our personal loan agreement solicitors can help you draft or review a personal loan agreement quickly and affordably, so you can feel confident in going ahead with it.
Alternatively, if you have loaned money to someone through a personal loan agreement and they haven’t paid it back, our network of solicitors can walk you through the legal options available to you for recovering the debt.
To find out more, contact our legal assessment team for a free case evaluation and quote today.