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A personal loan agreement is a legal contract between a lender and a borrower for lending money, which can be a bank, credit entity, or individual. This contract is legally binding. Unlike standard loans, which specify how the funds must be used (e.g., student loans, mortgages), personal loans offer more flexibility, allowing the funds to be used for various purposes. They are typically unsecured, meaning they are not tied to assets like homes or cars; however, some may require collateral. Essential components of a personal loan agreement include the names, addresses, and signatures of both parties, the state of execution, the contract date, and the total loan amount.