As a business attorney who has drafted hundreds of personal loan agreements for clients across the United States over the past twelve years, I know exactly how expensive it can be to pay $400–$800 every time you lend or borrow money from family, friends, or private individuals. The good news? In most situations you don’t need to. Below you’ll find my completely free personal loan agreement template (available in both Microsoft Word and PDF) that I personally use and update for 2025. It is designed for loans between individuals, individuals to small businesses, or even family members—secured or unsecured—and complies with general U.S. federal and state requirements (including IRS interest rules).
Important Disclaimer: This template and article are for informational purposes only and do not constitute legal or tax advice. Laws vary by state. Always consult a licensed attorney or tax professional in your jurisdiction before signing any binding contract.
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A personal loan agreement (sometimes called a private loan contract, family loan agreement, or personal loan letter) is a written contract between a lender and borrower that spells out the loan amount, interest rate (if any), repayment schedule, late fees, default consequences, and governing law. Even when you’re lending $5,000 to your best friend or your child, putting everything in writing protects both parties and—crucially—helps the IRS treat the transaction as a real loan instead of a taxable gift.
According to IRS Publication 550 and the “Applicable Federal Rate” (AFR) rules published monthly on IRS.gov, if you lend more than $10,000 without charging at least the AFR interest rate and without proper documentation, the IRS can recharacterize the entire transaction as a gift and assess gift tax. A solid personal loan agreement template prevents that nightmare.
This simple personal loan agreement template works perfectly for:
| Section | Purpose |
|---|---|
| 1. Parties & Date | Clearly identifies Lender and Borrower |
| 2. Loan Amount & Disbursement | Principal amount and how/when funds are delivered |
| 3. Interest Rate | Fixed rate (defaults to current IRS AFR if left blank) |
| 4. Repayment Schedule | Monthly, quarterly, lump-sum, or interest-only options |
| 5. Prepayment | Borrower may prepay without penalty |
| 6. Late Fees & Default | Standard 5% late fee and default interest |
| 7. Collateral (Optional) | Space to describe vehicle, jewelry, stock, etc. |
| 8. Governing Law | You choose your state |
| 9. Signatures & Notary | Ready for two witnesses OR notary (recommended over $100,000) |
Many people search for a “personal loan letter template” or “personal loan agreement letter.” A simple promissory note is usually sufficient for loans under $10,000–$15,000 between close family. However, once the amount exceeds that—or if you want late fees, collateral, or default provisions—a complete personal loan contract template like the one I provide is far safer.
This template works as both an unsecured loan agreement template (no collateral) and secured (just fill in the collateral section and consider recording a UCC-1 financing statement if the collateral is significant personal property).
Always verify your state’s rules or consult counsel.
Per IRS Publication 550 and IRC §7872:
Source: IRS Publication 550 and monthly AFR tables.
Is a handwritten personal loan agreement legal?
Yes, as long as it contains the essential terms and signatures, but typed is strongly preferred in court.
Do I need to notarize a personal loan agreement?
Not required in most states, but highly recommended for loans over $50,000 or when real property is involved.
Can I charge 0% interest to family?
Yes for loans under $10,000. Over that, the IRS will impute interest at AFR anyway.
Where can I find the current IRS AFR rates?
https://www.irs.gov/applicable-federal-rates (updated monthly).
In my decade-plus of practice, I’ve seen countless relationships ruined because a “handshake loan” went bad. Taking ten minutes to download and complete this free personal loan agreement template can save you tens of thousands in legal fees, taxes, and heartbreak. Use it, customize it for your state if needed, and sleep better knowing both parties are protected.
Again—download your free copies here:
Need a customized version for your specific state or situation? Feel free to reach out to a licensed attorney. But for 95% of personal and family loans in the United States, this template is more than sufficient.
Wishing you successful and stress-free lending!
This article was last updated November 2025.