FREE Family Loan Agreement [PDF, WORD] (2024)

What Is a Family Loan Agreement?

A family loan agreement is a set of terms and conditions that you and a family member enter concerning the payment of the money borrowed. This agreement outlines the loan’s principal amount, its maturity date, as well as other terms and conditions such as pre-payment and extension options. Although very uncommon, a family loan agreement may also impose interest rates and include a notarial seal to guarantee its repayment further.

How To Create a Family Loan Agreement

According to the same source mentioned above, almost half of family loans are left unpaid and outstanding. And with those numbers at play, you need to outline a clear set of terms and conditions to secure its repayment. For you to do that, detailed in the steps below is how you can create a family loan agreement.

1. Review Laws that Govern Loans

Like personal loans, family loans are governed and subject to federal and state laws. These laws set the limits of the lender and the borrower. It also ensures that investments are legally made by both parties as well. So, better start by checking these laws first before creating a family loan agreement with a family member.

2. Introduce the Parties of the Agreement

Much like a lease agreement, a family loan agreement starts by introducing the parties that created this agreement—The lender, the one lending the money, and the borrower, the one borrowing the money. Introducing the agreeing parties outlines their roles and responsibilities in the agreement. In turn, it solidifies the agreement’s terms and conditions as well. Since these loans are matters of the family, it’s also important to mention the parties’ relationship with one another as well.

3. State the Loan’s Principal Amount.

The loan’s principal amount is the actual amount of money borrowed and received by the borrower. It is also the object of which a loan agreement revolves around, as well. After introducing the lender and borrower, the next thing you should do is state the loan’s principal amount—in words and figures. Doing so prevents both parties from defrauding one another by knowing the exact amount of money involved in the agreement.

4. Set the Loan’s Maturity Date

The repayment of the money owed is the primary objective of a loan agreement. So aside from stating the loan’s principal amount, it is also essential to set the date of when the loan will mature or due for payment. Doing so allows the borrower to have a reasonable time to prepare the amount, as well as a routine schedule of payment. You may also set the terms and conditions of late payment here if needed, as well.

5. Sign and Seal the Agreement

Lastly, sign the family loan agreement with the borrower after agreeing with the terms and conditions for the repayment of the loan. Signing the loan agreement signifies that you and the borrower promise to pay the loan, as well as to respect each other’s rights to the contract.

Frequently Asked Questions

Family is some of the few places where one could instantly find help. And likewise, it is also one of many people whose kindness is too susceptible to abuse. Loaning money can be of great help to family members who are in the shoes of neediness. Yet despite them being connected to us by blood or by affinity, there’s nothing wrong in having an extra measure of protection by creating a family loan agreement between them.