Forming loan agreements is something you normally are involved with when you’re giving out loans. Rarely it’s something someone getting a loan needs to do because it’s the risks of the loan giver that need to be covered. Whilst it’s a communication and agreement between parties, there’s still one party that’s in a driver’s seat sort of say.

Now, if you ever find yourself in this seat, there are a few things you need to make sure are set out in the formal agreement. And yes, the agreement needs to be formal or at least written because how else would you prove you ever gave a loan? 

The necessary components of a loan agreement that I’m about to list may seem like common sense, but truth is, they are easy to forget. The “must haves” in a loan agreement are as follows:

• Define parties;
• Set out the maximum loan amount;
• Set clear due dates for partial payments if applicable and the final payment date for the full amount;
• Set the interest rates and respective due dates;
• If any partial payments are allowed and conditions of such payments if allowed;
• Any penalties for non-compliance?

Obviously you may determine some other conditions and regulate the agreement to the extent and detail you both agree, i.e. you may find it useful to set a collateral and so on. However, do make sure the above-mentioned areas are always regulated in your loan agreements.