Personal loan agreement – template
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Personal loan agreement – what you need to know
Lending money to friends or family is common, and a simple written agreement avoids misunderstandings later. It records the amount, whether interest is charged and when the money must be paid back.
What to include
- the full names and addresses of the lender and the borrower
- the amount, written in figures and in words, and how it is paid
- interest – or a clear statement that there is none
- the repayment plan: one payment by a date or regular instalments
- what happens if payments are missed
Is a loan agreement legally binding?
Yes – a written agreement signed by both people is a binding contract. It does not need to be witnessed or made as a deed for an ordinary loan. Lending between private individuals who are not in the business of lending is not regulated under consumer credit rules.
Tax points
Interest you receive as a lender may be taxable income. A loan that is later written off may count as a gift for inheritance tax purposes. If larger sums are involved, take advice.
Frequently asked questions
Does a personal loan agreement need a witness?
No. Signatures of the lender and the borrower are enough for a simple contract. A witness can still help if the signatures are ever disputed.
Can I charge interest to a friend?
Yes. Agree the rate in writing. If you do not want interest, say so clearly in the agreement.
What if the borrower does not repay?
Send a written reminder first. If that fails, you can claim the money through the small claims track of the county court; the signed agreement is your main evidence.
Should I use bank transfer or cash?
A bank transfer leaves a clear record. If you pay cash, the borrower should confirm receipt by signing the agreement.
This template is for general information and is not legal advice. It reflects the law of England and Wales as at October 2026. Check that it fits your situation before signing and take legal advice in unusual cases.