Personal cash loans agreements can be legally documented using a Promissory Note. This note is used to document in writing the parties involved in the lending transaction in addition to the terms of the contract. Terms are decided between the lender and the borrower. It’s generally recommended to have a written loan contract when lending cash to friends, family members and business partners. This article suggests some key terms to spell out in a cash loan contract using a Promissory Note.
Cash Loan Contracts Basic Terms
The most basic points to include in a money loan agreement define the underlying transaction’s terms and the parties involved. The majority of loan contracts should include the following:
- Date
- Amount
- Interest rate
- Borrower’s name
- Lender’s name
- Third party name such as a loan guarantor
- Signatures
- Notarized and Witnessed
Additional Terms for Money Loan Agreements
Many loan contracts can include more specific terms related to payments and possible default situations. These terms are meant to protect the lender and to make specific demands on the borrower.
- Payment terms – define how the loan is to be repaid (amount and date) and where the payments should be delivered. These terms may also include a maturity date for the cash loan and any extensions automatically granted.
- Default terms – these terms define when the borrower is considered to be on loan default. A list of clauses can be included here that clearly places the borrower on default when he fails to comply with specific loan terms.
- Collateral – the types and names of collateral assets required for the loan. This should also include where the collateral is to be held and by whom; borrower, lender or by a third party.
- Late Fees – a flat amount or a percentage to be paid on late fees when the loan is not repay on time.
Red Flags in Personal Loan Contracts
Lenders should be careful not to charge excessive interest rates and late fees on a cash loan. Usury laws in most States prohibit these types of high charges. Lenders should consult local regulations regarding personal loans before setting particularly high interest rates and late fee charges.
Promissory Notes Free Templates
There are many free resources online to get help writing a cash loan contract. Some of these websites are lawyers’ sites and others are businesses and not for profit associations. The Small Business Administration or SBA.gov, freeloancontracts.com and findforms.com are some of the sites offering loan templates.
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Disclaimer: These tips should not replace the expert advice of an attorney; especially when making a large cash loan and in complex lending situations.
Resources: Public information at the Small Business Administration, accessed on March 19, 2010.
Sylvia Cruz - Sylvia holds Bachelor and Master degrees in Business Administration with majors in Finance and Accounting. She is also a CIA - Certified ...
