How to Write a Legal Document for Lending Money

To avoid getting into trouble in court, you should always have a written agreement with all of the parties involved. Whether it is a loan agreement or an IOU, this article will walk you through the process. In addition, we will cover the important elements to consider, including the Default clause and the repayment schedule. Then, you can use this document as a legal basis for lending and borrowing money.


A person who is looking to lend money should know how to write an IOU in order to create a legal bond with the person he or she is borrowing money from. An IOU form has several parts, but all of them should include the full name of the borrower and debtor. The document must include a promise to repay in full, which will establish a legal relationship between the two parties. It is also necessary to state the exact amount that is owed, including the interest rate.

Promissory notes

When writing a loan agreement, there are a few important things that you should pay special attention to. The document must contain the exact names of the lender and borrower, and it should also include the interest rates, payment schedule, and penalty clause. It is also important to make clear how repayment will be handled if either party fails to make a payment. In addition, the document should contain the proper dates for both the start and end of payments.

Loan agreements

The first thing you need to know when writing a loan agreement is that it must be in writing. You should make sure that the document contains all the terms that are to be included in the loan, such as the interest rate and the number of installments. You should also state the type of interest you will charge for the loan and specify whether the lender will require a penalty fee if the borrower does not make the agreed upon payments on time. In addition, you should include any clauses that will govern your loan, such as arbitration, to resolve disputes.

Default clause

When drafting a loan contract, it is essential to ensure that a default clause is included. It should protect both the Lender and Borrower’s interests. If the borrower is in default on one loan, the other loan will also be suspended until the borrower cures the original default. A cross default clause should also limit the scope of the clause and trigger it only in certain circumstances, such as when the Borrower has multiple loans from the same Lender.

Severability clause

A severability clause in a legal document for lending funds protects the lender and the borrower from being forced to cancel the agreement because one term is invalid. It also protects the overall objective of the document, as it allows one part to survive if another fails. However, this clause is not without its dangers and consequences. Here are some things to keep in mind when drafting a severability clause in a legal document for lending money.

IOU vs loan agreement

When you want to lend money to a business or a person, it’s best to consider the advantages of using an IOU instead of a loan agreement. This less formal contract states the amount that you owe another individual or company, and it can be used for past transactions or a specific event. You can also use it when you don’t have the money to pay the full amount immediately, but want to make it clear that you will make the remainder of the order within a certain time period.

Tax consequences of late payments

If you’re looking to lend money and you know that you might have to make late payments, you need to understand the tax consequences of deferred payments. The rules for deferred payments are slightly different than those for other types of debt, and the terms you agree upon with your debtors can have a major impact on the amount of taxes you have to pay. The IRS has a website where you can look up the minimum interest rate for the current month.

How to Write a Legal Document for Lending Money