What is a loan agreement?
A loan agreement or loan contract is a written agreement that specifies all the details of a personal or business loan, including the amount of money or the assets being lent, the repayment terms, and what happens if the borrower defaults (is unable to pay according to the terms). Loan agreements should be used even when lending money to a friend or family member. Unlike a casual IOU, a formal contract makes every detail clear for both parties, can be legally binding, and can help prevent disputes.
How is a promissory note different from a loan agreement?
Loan agreements and promissory notes are very similar types of contracts. They both provide details about a debt that a borrower promises to repay. However, a loan agreement likely contains longer and more detailed clauses and is signed by both the borrower and the lender, while promissory notes are sometimes only signed by the borrower.