Payment Agreement Template
A payment agreement is an important contract between a lender and borrower that spells out the terms and payment obligations of a loan. A payment agreement can be between family members or more formally in a business setting. A loan agreement is fundamental to ensure the lender is protected.
What is in the Payment Agreement Template?
- A payment agreement simply outlines the terms of a loan.
- The agreement sets a borrower’s financial obligations and implements a payment plan.
- A payment agreement provides a lender with a legal remedy should the borrower breach the payment contract.
- Other names for a payment agreement include Loan Agreement, Payment Contract, Payment Plan Agreement, Installment Agreement, Business Payment Agreement, Personal Payment Agreement, and IOU.
When is a Payment Agreement Needed?
A payment agreement is needed anytime money is being loaned. If there is not a valid agreement in place, the lender may be left without any legal recourse. It can be challenging to prove that the parties agreed without an executed and detailed payment plan in place. A payment agreement is necessary if you plan to borrow money or if you intend to lend money.
Why do you Need a Payment Agreement?
A payment agreement is a formal, legally binding contract that is essential when money is being loaned. The party lending the money is commonly referred to as the “lender.” The party receiving the funds is commonly referred to as the “borrower.”
Establishing a payment plan clearly documents the borrower’s financial obligation to the lender. Should the borrower default on the payments due under the agreement, the lender is provided with a legal remedy.
Having all of the loan and payment details in one document eliminates confusion while providing the lender with proper assurances.
What Should be Included in a Payment Agreement?
A payment agreement establishes the terms and agreement of a loan. Here are a few essential elements of a simple payment agreement:
- Parties to the agreement (Lender/Borrower)
- Effective Date
- Total Amount of the Loan (Financial Obligation/Amount of Money)
- Payment Plan / Installments
- Payment Due Dates and Late Fees or other Penalties
- Indemnification provision
- Dispute Resolution
- Accurate Contact Information for all Parties to the Contract
Common Mistakes to Dodge when Drafting a Payment Agreement
Payment agreements are the best way to ensure both the borrower and the lender are on the same page about the financial obligations of the loan. Some common mistakes include:
- Failing to state the total loan amount
- Excluding a reasonable and attainable payment plan
- Payment amount, Payment schedule, and penalties
- Obtaining all appropriate signatures
- Neglecting to consult with an attorney to receive legal advice
How to Tailor your Payment Agreement
Every payment agreement will differ based on the loan amount and other specific circumstances. Each state may have different state laws regarding what should and should not be allowed in a loan. It is important to reach out to an experienced attorney to review a proposed payment agreement.
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Other Financial Resources for your Company
When it comes to money and finances, organization is a must. Check out the links below links to some helpful financial, organizational software for small businesses:
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THIS PAYMENT AGREEMENT (“Agreement”) is being made between ____________________ (“Lender”) located at _________________________________________________________________and ________________________(“Borrower”) located at_____________________________________ on this _____ day of ______, 20___.
WHEREAS, Borrower owes Lender a certain; and
WHEREFORE, Lender and Borrower enter in this Payment Agreement; and,
IN CONSIDERATION THEROF, the Parties agree to the following:
The Borrower[s] agree that the amount owed to the Lender[s] is $___________________________ (“Debt Amount”)
The parties hereby agree to the following payment plan:
The Borrower[s] hereby represents and warrants that the aforementioned payment plan was created in consideration for the borrower to be able to make their obligated payments without causing further indebtedness or detrimental circumstances.
Parties entering into this Payment Agreement with the understanding that the Lender[s] agree to release the Borrower[s] from any prior actions, claims, and/or liabilities due to the Debt Amount.
WARRANTIES AND REPRESENTATIONS
The Parties to this agreement fully represent that they are authorized to enter into this Payment Agreement. The obligations and performance of either the Borrower or Lender shall not infringe upon or violate the rights of any third party or violate any other agreement between the Borrower or Lender, any other individual, business entity, or formal organization, or interfere with any law and or governmental regulation.
In the event any part or provision of this Payment Agreement is deemed unenforceable or invalid, in part or in whole, that part shall be severed from the remainder of the Payment Agreement and all other parts or provisions shall continue in full force and effect as valid and enforceable.
No waiver by any Party of any of the provisions hereof shall be effective unless explicitly set out in writing and signed by the Party so waiving. No waiver by any Party shall operate or be construed as a waiver in respect of any failure, breach, or default not expressly identified by such written waiver, whether of a similar or different character, and whether occurring before or after that waiver. No failure to exercise, or delay in exercising, any right, remedy, power, or privilege arising from this Agreement shall operate or be construed as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege.
In the event that the borrower[s] default on any payments and fail to cure the default within a reasonable amount of time, the Lender[s] will have the option to accelerate and declare the entire remaining amount of the Principal and any accrued interest to be immediately due and payable.
Parties to this Agreement shall first attempt to settle any dispute through a good-faith negotiation. If the dispute cannot be settled between the parties via negotiation, either party may initiate mediation or binding arbitration in the State of ________________.
If the parties do not wish to mediate or arbitrate the dispute and litigation is necessary, this Agreement will be interpreted based on the laws of the State of _________________, without regard to the conflict of law provisions of such state. The Parties agree the dispute will be resolved in a court of competent jurisdiction in the State of ______________________.
The prevailing party to the dispute will be able to recover its attorney’s fees and other reasonable costs for a dispute resolved by litigation or binding arbitration.
GOVERNING LAW AND JURISDICTION
The laws of the State of _______________ shall govern as to the interpretation, validity, and effect of this Agreement.
This Agreement constitutes the sole and entire agreement of the Parties regarding the subject matter contained herein, and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, regarding such subject matter. This Agreement may only be amended, modified, or supplemented by an agreement in writing signed by each Party hereto.
This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall be deemed to be one and the same agreement. A signed copy of this Agreement delivered by facsimile. email, or other means of electronic transmission shall be deemed to have the same legal effect as delivery of an original signed copy of this Agreement.
This Agreement and related documents entered into in connection with this Agreement are signed when a party’s signature is delivered electronically, and these signatures must be treated in all respects as having the same force and effect as original signatures.
This Agreement cannot be changed, modified, terminated, canceled, rescinded, or in any other way altered or negated unless the same is in writing and signed by the party against whom enforcement of the change, modification, discharge, termination, cancellation, or rescission is sought.
It is agreed that all understandings and agreements heretofore had between the parties are merged in this Agreement, which alone fully and completely expresses their understanding, and this Agreement has been entered into after full investigation and consideration, neither party relying upon any statement or representation, not embodied in this Agreement, which may be claimed to have been made by any of the parties hereto.
IN WITNESS WHEREOF, the BORROWER[S] and the LENDER[S] have executed this PAYMENT AGREEMENT the day and year first above written.
Lender[s] Contact Information:
Phone Number: _________________________
Email Address: _________________________
Borrower[s] Contact Information:
Phone Number: _________________________
Email Address: _________________________
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