A personal loan agreement records money lent between family members, friends or colleagues, and the terms for paying it back. It is built to evidence that the transfer was a loan rather than a gift, which is the question that comes up later with the IRS, in a probate court, and in the parties' own recollection.
Free to use. Legally binding under the ESIGN Act, UETA, and eIDAS.Updated October 2026 by Document eSign
A personal loan agreement is a written contract recording money lent by one individual to another, usually a family member, a friend or a colleague, and the terms on which it will be repaid. It names the parties, the amount, the funding date, whether interest is charged, the repayment route and what happens if payments stop. What separates it from a commercial loan document is everything built around the relationship: a statement that the money is a loan and not a gift, a record of the applicable federal rate the parties used so the federal below-market loan rules can be reconstructed later, clauses dealing with what happens if the lender or the borrower dies, and a requirement that any forgiveness or change be written down and signed rather than agreed in conversation. It is signed by both parties, needs no notary or witnesses of its own, and is enforceable in the same way as any other written contract. Taking security over property is a separate instrument, and that one usually does have to be notarized or filed.
Who uses it
A parent lending a child money for a deposit, a car or a businessFriends putting a loan in writing before it becomes a sore subjectSiblings where one is borrowing and the others want the balance recordedAnyone who already transferred the money and wants it documented properly nowA lender who wants the loan to survive their own death as an estate assetSomeone lending enough that the IRS below-market loan rules are in play
What's inside
A loan-and-not-a-gift clause backed by a payment record, which is what the IRS and a probate court look for
Interest-free or interest-bearing as a keep-one choice, with any rate above the state maximum reduced to that maximum
A below-market interest clause and a Schedule A line recording the applicable federal rate used and the month it came from
Three repayment routes: installments, a single payment on a maturity date, or on written demand with a minimum notice period
Schedule B payment record with initial columns, so repayment behavior leaves a trail
A payment default that needs written notice and a cure period before the balance can be accelerated, with the other defaults taking effect at once
Joint and several liability for co-borrowers, with a Schedule F signature page for them, drafted so a later divorce arrangement does not bind the lender
Clauses for the death of either party, including whether an unpaid balance counts against the borrower's share of the estate
Schedule E forgiveness and variation register, so no conversation can reduce the debt
Schedule C security section that says plainly what filing or recording the agreement does not do
HOW IT WORKS
From template to signed in three steps.
01
Start from the template
Open it in the editor with the fields already mapped, or download the DOCX to edit offline.
02
Add signers and send
Drop signature and date fields, then route each party in order or in parallel.
03
Get a sealed copy
Everyone signs, and you get a tamper-evident PDF plus an audit certificate.
Free forever. No credit card. Your recipients sign with no account.
The details
Everything to know before you send it.
1
Whether this was a loan or a gift decides almost everything else
Money moves between family members all the time without a word written down. The trouble starts later, when somebody has to say what the transfer actually was. The IRS asks it when the lender wants a deduction or the amount looks like a gift. A probate court asks it when the lender dies and the other children want the balance counted. A divorce or bankruptcy court asks it when the borrower's assets and debts are being listed. In each of those rooms the person claiming it was a loan carries the burden of showing it.
What gets a transfer treated as a real debt is paper plus behavior that matches the paper. On the paper side: a signed agreement naming the amount and a date, a rate or a recorded decision not to charge one, and a repayment schedule with real dates in it. On the behavior side: payments that actually arrive, through a bank rather than in untraceable cash, and a record of them kept as they happened rather than assembled later.
Clause 2 of this template states the intention in terms, and clause 21 with Schedule B exist so that the second half leaves a trail. An agreement signed on day one and then ignored for four years is weaker evidence than a modest loan with twelve recorded payments against it. That is also why the schedules matter more here than the clauses do, and why a half-filled Schedule A is the usual weak point in one of these documents.
2
The tax rules on an interest-free family loan
Lending to a relative at no interest is normal and legal. Above a threshold it carries a federal tax consequence, and the reason traces back to Dickman v. Commissioner, 465 U.S. 330, decided April 16, 1984. The lenders argued that letting someone use money without charging for it gave away nothing at all. The Supreme Court held that the transfer of cash, interest-free and repayable on demand, is a grant of the use of valuable property, and that the right to use money without charge is itself a valuable interest in the money lent. The gift was not the principal. It was the use of it. Congress wrote the mechanics into the code three months later as section 7872, added by Public Law 98-369 on July 18, 1984.
Section 7872(f)(3) defines a gift loan as a below-market loan where the forgoing of interest is in the nature of a gift. The interest the lender did not charge is called forgone interest. Section 7872(a) treats that forgone interest as transferred from the lender to the borrower and then handed straight back to the lender as interest received. Nobody moves any money, and the amount that lands in the lender's income is the part people miss. Section 7872(a)(2) does the pretending on the last day of each calendar year.
Three provisions keep this away from most ordinary family loans, and they work in different ways.
The first is an exception. Under section 7872(c)(2)(A) the section does not apply on any day when the total of loans between the two individuals is $10,000 or less. The figure is the aggregate outstanding between them rather than the size of a single loan, so three $4,000 loans to the same person cross the line. Section 7872(c)(2)(B) withdraws that exception where the loan is directly attributable to buying or carrying income-producing assets.
The second is a cap. Under section 7872(d)(1)(A), for a gift loan directly between individuals, the amount treated as handed back as interest for income tax purposes cannot exceed the borrower's net investment income for the year, and section 7872(d)(1)(E)(ii) treats net investment income of $1,000 or less as zero. A borrower with no investment income therefore leaves the lender nothing to report. Section 7872(d)(1)(B) withholds the cap where one of the principal purposes of the interest arrangements is avoiding federal tax.
The third is a switch. Section 7872(d)(1)(D) turns the cap off on any day when loans between the two exceed $100,000.
The gift tax side works differently, and this is the part that surprises people. Section 7872(d)(2) provides that for a gift loan which is a term loan, the gift tax position is worked out under section 7872(b)(1) rather than through the annual mechanism. The whole discount, meaning the difference between what was lent and the present value of what will be repaid, is a gift at the moment the loan is made rather than a trickle spread over the years. For 2026 the first $19,000 of gifts to any one person falls under the annual exclusion in section 2503, and the basic exclusion amount carrying the lifetime figure is $15,000,000, both per Rev. Proc. 2025-32.
One habit makes all of this manageable: track the running total between the two of you rather than each loan on its own, because both the $10,000 and the $100,000 figures are measured on the aggregate outstanding between the same two people. Above the de minimis line this is a conversation to have with a tax adviser before the money moves, not after.
3
A fixed date and a demand loan are measured against different rates
The rate a below-market loan is measured against is the applicable federal rate, which the IRS publishes monthly in three bands, short-term, mid-term and long-term, matched to how long the loan runs.
Section 7872(f)(2)(A) covers a term loan, meaning a loan with a definite end date. The applicable federal rate is the rate in effect under section 1274(d) on the day the loan was made, compounded semiannually. Fix the rate at that figure on day one and the loan is not below market for the rest of its life, whatever rates do afterwards.
Read the compounding carefully, because it is easy to land just under the line. The statutory measure assumes semiannual compounding, while clause 3(b) of this template charges simple interest unless Schedule A Part 3 says otherwise. A simple-interest loan stated at exactly the published rate therefore sits slightly below the statutory measure. A lender who wants to rely on the applicable federal rate should either record semiannual compounding in Part 3 or set the simple rate a little higher.
Section 7872(f)(2)(B) covers a demand loan, which section 7872(f)(5) defines as a loan payable in full whenever the lender asks. There the measuring rate is the federal short-term rate for each period in which forgone interest is being worked out. A demand loan is re-measured as rates move, so a fixed 2 percent on a demand note that looked generous when it was signed can be below market three years later, with forgone interest arising in years nobody was thinking about it.
Options (a) and (b) in clause 5 both give the loan a maturity date, which is the simpler position to hold. Option (c) is there for parties who genuinely want a demand loan, and it requires the demand to be in writing under clause 18, with a minimum notice period and an earliest date so the borrower is not exposed to a call with no warning. Those two protections may also take the arrangement outside the section 7872(f)(5) description of a loan payable at any time, which is a question for a tax adviser rather than one this page can settle.
4
Filling in the six schedules
The clauses are drafted to be left alone. Almost everything specific to the parties lives in the schedules, and an unfilled schedule is a common reason one of these agreements turns out to be hard to enforce.
Schedule A Part 1 carries the names, addresses and email addresses, which are the addresses clause 18 uses for every notice and for a demand. Part 2 records the amount, the funding date, how the money is moving and what it is for, and it has lines for money already advanced before the agreement was signed, which is how most family loans actually happen.
Part 3 is the interest record. Tick the option in clause 3 you are keeping, write the rate if there is one, say whether it compounds, and write down the applicable federal rate you used as a reference with the month it was published and which of the three bands it came from. Years later that is the line anyone starts from when working out the tax position.
Part 4 mirrors the three repayment routes in clause 5. Fill in only the block for the route you keep. Part 5 is the account and the payment reference. Part 6 records whether an unpaid balance is meant to be an advance against the borrower's share of the lender's estate, initialed by both parties.
Part 7 is the borrower's own statement of income and existing debts. It makes the lender think about whether the loan is affordable, and clause 9(d) makes a materially untrue answer a default.
Schedule B is the payment record and the one page that gets neglected. Schedule C is only for a secured loan. Schedule D is only signed if there is a guarantor, and clause 14 is struck if there is not. Schedule E is where a forgiveness or any change to the terms gets written down. Schedule F is where a second or third borrower signs, which matters because clause 13 makes each of them liable for the whole balance while a co-borrower who never signed anything is not liable at all.
5
If the borrower never pays, what the lender can actually claim
A lender who writes off a personal loan does not get the deduction a business would. Section 166(d)(1)(A) of the Internal Revenue Code says the ordinary bad debt deduction in section 166(a) does not apply to a nonbusiness debt. Instead section 166(d)(1)(B) says that when a nonbusiness debt becomes worthless in a tax year, the loss is treated as a loss from the sale of a capital asset held for not more than one year. In practice that is a short-term capital loss, which offsets capital gains first, then ordinary income up to the annual limit, with the remainder carried forward.
Section 166(d)(2) defines a nonbusiness debt as one not created in connection with the taxpayer's trade or business, which puts a one-off loan to a sibling squarely in that category. Two further points matter. The debt has to be wholly worthless rather than merely late, which usually means the lender can show that collection was pursued and failed. And none of it is available unless there was a bona fide debt to begin with, so a lender who never wrote the loan up is arguing both questions from a standing start.
An amount the lender chooses to forgive is a different situation from one that becomes worthless. Forgiveness is a decision, and clause 17 requires it to be written into Schedule E. Recasting a balance you simply decided not to chase as a worthless debt is a weak position to be in if anyone asks.
6
How long the lender has to sue
The clock on a personal loan is set by state law, and which rule applies depends on what the paper is.
This agreement carries undertakings on both sides that have nothing to do with paying money, which keeps it outside the definition of a negotiable instrument. It is therefore generally treated as an ordinary written contract and takes the state's limitation period for an action on a written instrument. California gives four years under Code of Civil Procedure section 337(a). Florida gives five under section 95.11(2)(b) of the Florida Statutes. New York gives six under CPLR 213(2). Those three illustrate the range, and the period in any particular state has to be checked rather than assumed.
A bare promissory note that qualifies as a negotiable instrument runs on the Uniform Commercial Code instead. Section 3-118(a) gives six years from the due date stated in the note, or six years from the accelerated due date if it has been accelerated. Section 3-118(b) splits the demand note in two: where a demand has been made, six years run from the demand; where no demand is ever made, enforcement is barred once neither principal nor interest has been paid for a continuous period of ten years. A demand note left in a drawer can expire without anyone making a decision about it. That is the uniform text, and state enactments of Article 3 vary, so check the version your state adopted. Our promissory note page goes further into the note-specific mechanics.
Two practical points for this agreement. Accelerating under clause 10(a) makes the whole balance due on a single date, so a lender who accelerates and then waits is working against a clock running from that date. And in many states a part payment or a signed written acknowledgment of the debt restarts the limitation period, though the conditions differ state by state, which is one more reason to keep Schedule B current and initialed rather than relying on memory. Where option (c) in clause 5 is used, the balance falls due a set number of days after a written demand, and that due date is the natural place for the period to start.
7
Collecting from someone you know
A private lender chasing a personal loan is in a different legal position from a collection agency, and mostly a freer one. The Fair Debt Collection Practices Act applies to a debt collector, which section 1692a(6) of title 15 defines as someone whose principal purpose is collecting debts, or who regularly collects debts owed to another person. A lender collecting a loan they made themselves is generally outside that definition.
One line in the same paragraph is worth knowing. A creditor who, while collecting their own debts, uses a name other than their own in a way that suggests a third party is doing the collecting is treated as a debt collector under the Act. Inventing a collections company to put pressure on a relative moves the lender inside a statute they were comfortably outside. State debt collection and harassment laws can also apply to a private lender regardless of the federal position.
Most personal loans are small enough for small claims court, where the filing limits and the procedure are set state by state and a lawyer is often not needed. Before starting, be clear about what a win produces. A judgment is an asset that then has to be enforced against wages, a bank account or property, and it is only ever worth what the other person actually has. Weighed against that, a written variation under clause 17 that stretches the schedule is often the better outcome for a lender who wants to be repaid rather than vindicated.
8
What happens if one of the parties dies
A loan between individuals does not quietly disappear when one of them dies, and the two directions work differently.
If the lender dies, the right to repayment is an asset of the lender's estate. Clause 19 says so in terms, because it is a point that is easy to assume the other way. Canceling the debt on death takes a will or another valid testamentary instrument that says so, and this agreement cannot do it.
There is a separate question, which comes up whenever one child has borrowed and the others have not: should the unpaid balance count against that child's share? Schedule A Part 6 records which of the two outcomes the parties intend, with both sets of initials, and clause 19 then says what each choice does. If the balance is to be set against the borrower's share, the estate may satisfy the debt by set-off and the borrower is released to that extent, which avoids the obvious trap of the estate both collecting the debt and docking the inheritance. If the ordinary route is chosen, the debt is collected like any other and the share is untouched. Making the set-off route work in practice usually needs matching wording in the will, and it does nothing at all if the borrower turns out not to be a beneficiary.
If the borrower dies, clause 20 treats the unpaid amount as a debt of the borrower's estate and clause 9(f) makes the death an event allowing the lender to accelerate, so the claim presented in the probate administration is for the whole balance rather than the next few installments. The window for presenting it is set by state law and can be measured in a few months from the notice to creditors, which is short enough to miss while a family is grieving. Anyone who signed Schedule F as a co-borrower, and any guarantor under clause 14, stays liable for the whole amount whatever the estate does.
9
The conversation that undoes the paperwork
Most personal loan agreements come apart well outside a courtroom, and it often starts with a kind remark. A parent tells a struggling child not to worry about this month. Three years later there is a disagreement about whether the balance was ever reduced, and both sides remember the conversation differently.
Clause 17 is written to close that off. Forgiveness takes the lender's signature in Schedule E. Any other change to the amount, the rate or the schedule takes both signatures. Nothing said in conversation, no unsigned message, no missed payment the lender lets pass and no quiet period where nobody asks for money reduces the debt or moves the dates. Clause 8 adds that accepting a late payment waives nothing and changes no schedule.
None of that stops a lender being generous. It makes generosity a recorded act, which protects the borrower just as much, because a signed and dated entry in Schedule E is proof the borrower can produce later. A lender who genuinely wants to waive three months should write those three months in.
The other common unraveling is money that keeps going out. A loan written up at $5,000 grows by a few hundred at a time until nobody knows the balance. Clause 16 says this agreement covers only the amount in clause 1, and a later advance sits outside it unless both parties sign a variation bringing it in. Schedule A Part 2 is where an existing balance gets brought in properly at the start, which is the cleaner alternative to a second loose arrangement running alongside the first.
10
Signing it, and the one case where a notary is involved
A personal loan agreement needs no notary and no witnesses to be a valid contract. Both parties sign and date it, and each keeps a copy with the schedules attached. An electronic signature carries the same effect as a handwritten one, which comes from the federal ESIGN Act and the state UETA rather than from anything written in the agreement, and clause 24 confirms the parties intend it. Signing electronically also captures a timestamp alongside each signature, which is useful on a document whose date can matter years later.
There is one situation where a notary gets involved, and it is worth being precise about what needs one. It is not this agreement. It is the separate instrument that creates the security. Clause 12 lets the parties record that the loan is secured, but that record only binds the two of them.
Making security effective against a later buyer or another creditor is a separate step. For land or a house it means a mortgage or deed of trust, notarized and witnessed where the state requires it, and recorded with the county recorder. For a vehicle it usually means a lien noted on the certificate of title through the state motor vehicle agency. For other personal property it often means a financing statement filed with the state. Schedule C asks which of those steps has been taken, and says plainly what it means if none has: against other creditors the lender may be no better off than on an unsecured loan. A secured family loan on a house is the point at which a lawyer should be drafting the security rather than a template.
11
How this differs from our other loan templates
Four templates on this site cover money owed, and the useful question is which situation you are in.
Use this one if the lender and the borrower know each other personally. It carries the machinery a commercial loan has no use for: the loan-and-not-a-gift statement, the applicable federal rate record, the clauses for the death of either party, and the forgiveness register.
Use our loan agreement template for a general-purpose loan where that machinery is beside the point. It serves individuals and businesses alike and is the plainer document of the two.
Use our promissory note template if what you want is a short one-sided promise to pay rather than a two-way contract. It is also where the state usury ceilings and the acceleration mechanics are covered in detail.
Use our payment agreement template if no money is being advanced now and an existing debt, such as an unpaid invoice or an overdue balance, is being put onto an installment plan. This page still fits where the money went out earlier and the parties are writing the loan up properly, which is a different situation from restructuring a debt that has already gone bad.
This template and the guidance on this page are provided for general information only and are not legal advice. Laws differ by country and state, so review the final document against your own situation and have a qualified lawyer check anything high-value or regulated before you sign.
FAQ
Questions, answered.
Is a verbal loan to a family member enforceable?
In principle yes, because an agreement to lend and repay money is a contract whether or not anyone wrote it down. The practical difficulty is proof. A bank transfer on its own shows that money moved. It does not show on what terms, or that repayment was ever agreed at all. There is also a statute of frauds point: in some states the rule that a contract incapable of being performed within one year must be in writing can be raised against a verbal loan repayable over several years, while in many states the lender having already handed over the money takes the contract outside that rule. It varies enough that relying on it either way is unwise.
How much interest can I charge a friend or relative?
The ceiling is your state's usury limit, which our promissory note page covers. Picking the actual number is the part worth getting right. The IRS publishes applicable federal rates monthly in three bands, short-term, mid-term and long-term, and you want the band that matches how long your loan runs, taken from the month the loan is made. Those published rates assume semiannual compounding, so if your loan charges simple interest, which is what clause 3(b) does unless you say otherwise, the same stated percentage comes out slightly under the statutory measure. Either write semiannual compounding into Schedule A Part 3 or nudge the simple rate up. Record the rate and the month in Part 3 either way.
Do I have to report a personal loan on my tax return?
The principal is not income to the borrower, and getting principal back is not income to the lender, so the loan itself is not reported. Interest is. Interest you actually receive on a family loan is taxable interest income to you, reported like any other interest, and private lenders routinely miss this. Imputed interest under the below-market rules lands on the lender's side as well, not the borrower's. On the gift side, a gift above the annual exclusion generally calls for a gift tax return even when no tax is payable, with the figures in the tax section above doing the real work. If you forgive part of the balance, a gratuitous forgiveness between family members is generally treated as a gift from you rather than as cancellation-of-debt income to the borrower, which is the reverse of how a commercial write-off usually works.
Can I document a loan I already made months ago?
Yes, and clause 1 and Schedule A Part 2 are written for it. What matters is that the document recites what actually happened: the date or dates the money went out, the original amount, anything already repaid, and the balance outstanding today. Interest, if you are charging it, then runs from the date each part was advanced rather than from the day you signed. What you should not do is backdate the signature. That turns a fixable gap in the paperwork into a document that misrepresents itself, which will do more damage than having no agreement at all. An agreement signed today that describes an earlier advance accurately is ordinary and defensible.
What do I do if the borrower just stops paying?
Work the agreement's timeline in writing, and notice how long it runs on the default figures. A payment missed on the 1st is late on the 11th, once the ten-day grace period in clause 8 has run, and the late fee becomes chargeable then. It is not yet a default. It becomes one under clause 9(a) only if it is still unpaid fifteen days after that, so around the 26th, and you have sent a written notice under clause 18 giving a further fifteen days to put it right. The earliest you can accelerate under clause 10 is therefore about six weeks after the missed payment. All three periods are placeholders you can change before signing. At the point acceleration becomes available you have a real choice between calling in the whole balance and signing a variation in Schedule E that stretches the schedule, and with a borrower who is struggling rather than refusing, the second often collects more money.
Can I add a cosigner or guarantor after the loan has been made?
Not by writing a name on the original, because a guarantee is a promise by a new person and that person has to sign something. Getting it signed at the same time as the agreement, in Schedule D, avoids two problems. A guarantee has to be in writing to be enforceable. And where the money has already gone out, the guarantor is promising to cover a debt they received nothing for, and states differ on whether a later guarantee needs fresh consideration, with some treating a signed writing that recites the earlier advance as enough. If a guarantee matters to you, get it signed before the money moves.
Do I need a lender's license to lend money to a friend?
A one-off loan to someone you know is generally not carrying on a lending business, and no license is usually involved. The position changes if you start lending regularly, to people you do not know, at a profit. Most states license consumer lenders and set rules on rates, disclosures and collection practices, and some of those regimes are triggered by a smaller number of loans than people expect, though the count and the definitions differ by state. If you are lending to several unrelated people as a way of earning a return, check your state's licensing rules before the next one.
Should both spouses be named when a couple borrows?
There is one tax point worth knowing that the thresholds above do not spell out. Section 7872(f)(7) treats a husband and wife as one person throughout the below-market loan rules, so a couple cannot pick up two sets of the $10,000 and $100,000 figures by lending or borrowing in two names, in either direction. On the contract side, naming both improves your position under clause 13 without changing that arithmetic, and each of them has to sign, the second one in Schedule F.
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