There are several components of a loan agreement that you will need to include in order to make it enforceable. A loan agreement is designed to protect you so when in doubt, create a loan agreement and make sure you are protected no matter what happens. If it is a large sum of money that will be repaid to you, as agreed upon by both parties, then taking the extra steps to ensure that the repayment takes place is well worth your time. If you are trying to determine whether you need a loan agreement, it is always better to be on the safe side and have one drafted. Even if you think you may not need a loan agreement with a friend or family member, it is always a good idea to have this in place just to make sure there are no issues or disagreements over the terms later that could ruin a valuable relationship. That is important because it prevents someone from trying to get out of repayment by claiming this, but it can also help you ensure that it is not an issue with the IRS later. A loan agreement not only details the terms of the loan, but it also serves as proof that the money, goods, or services were not a gift to the borrower. Once it has been executed, it is essentially a promise to pay from the lender to the borrower.īorrowing money is a big commitment no matter the amount, which is why it is important to protect both parties with a loan agreement in place. The loan agreement has specific terms that detail exactly what is given and what is expected in return. The purpose of a loan agreement is to detail what is being loaned and when the borrower has to pay it back as well as how. You never really want to loan out any money, goods, or services without having a loan agreement in place to ensure that you will be repaid or that you can take legal action in order to have your money recouped. Before you lend anyone any money or provide services without payment, it is important to know if you need to have a loan agreement in place to protect you.
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