Loan agreement

Imagine you want to borrow some money from your friend to buy a toy that you really want. You and your friend talk about the money that they will lend you, and you agree to pay back the money plus extra money as a thank you for lending it to you. This agreement between you and your friend is like a loan agreement.

A loan agreement is an official agreement between two parties, like you and your friend, that lays out the terms of a loan. These terms include how much money will be loaned, when you have to pay it back, and how much extra money you have to pay as interest for borrowing the money. The agreement also has rules about what happens if you don't pay the money back on time, like charging you extra fees or taking away something of value that you own.

Loan agreements are a way for people or businesses to borrow money from others and make sure everyone is on the same page about how the loan will work. By agreeing on the terms of the loan beforehand, it helps to prevent any misunderstandings or arguments between the parties involved.