Is loan agreement legal contract between lender and borrower?
By: Robert Mark | Posted: 15th March 2012
A loan agreement is a legal contract between lender and borrower. A loan agreement records the terms and conditions of the loan. It is not necessary that loan agreement must be in written form but the courts prefer the written agreement. It is paramount that borrower must read and understand the each paragraph of the loan agreement form before signing the loan agreement because once the loan agreement form is signed; it becomes the legal document. The loan contract must specify the modes of repayment such as:
whether the loan will be repaid in lump sum, or
by instalment,
If by instalment on which date the instalment will be paid; and
if the instalment is not paid on time then what fine will be charged;
Interest rate.
Loan agreements are enforceable in the court of law. Generally, the loan agreements are interpreted and enforced in accordance with the law of such state:
Where the loan agreement is made; or
Where the lender resides.
A loan agreement can be secured or unsecured. A secured loan agreement form requires the collateral but unsecured loan contact does not involve the collateral. Unsecured loan is always based on high interest rate.
A loan agreement is a contract that spells out the terms and conditions of the loan. The loan agreement can be made between:
Corporations;
Individuals; or
Individuals and corporations.
The loan agreement template must specify the name of the parties involved, the amount of loan, due date, schedule of repayment, interest rate, event of default, jurisdiction etc. The interest rate is the significant matter that must be certain in loan document. Usually, the lender considers the following factors while deciding the interest rate such as;
Amount loaned by the borrower;
The security given by the borrower; and
The down payment amount etc.
Why a personal loan agreement is essential for you?
Suppose you are lending or borrowing a large sum of money from your friend or either from a relative to start a business, here you need a written personal loan agreement to clarify what the expectations of you (borrower) and your friend (the lender).In addition to this, you might think your loan agreement unsecured, than you must consult a legal aid.
Same is the case with corporations and giant organizations. If they want to raise money for business or borrow some cash or physical goods from any second or outside party than it is known as business loan. Here, the need of a well-defined and written business loan agreement is needed. The business loan agreement entitles the terms and conditions for both lender and borrower under which the loan is given and taken. Mostly, the banks are the lenders while borrower is of any type such as: an individual, partnership, a company or a non-profit organization.
Whether it is a personal loan agreement or a business loan agreement, the terms and conditions include:
Repayment:
Repayment schedule entitles a list of exact dates of payment and minimum expected amounts.
Guaranteed:
It means guarantee or charges given as loan security. It is mostly used in business loan agreement as bank requires security to back loan. In this case, you also need a co-signer or guarantors and their liability. To avoid any security issues, the bank often take your personal property as security mortgage.
Covenants:
The covenants are another important term and condition of business loan agreement. Covenants are a list of conditions that a borrower has to comply to keep the loan in good standing. Conditions are: proof of hazard insurance, life insurance, lists of taxes, fees and licenses.
These above things are also important for personal loan agreement as well. The loan agreement can be unsecured if you do not follow these terms and conditions. Beside this, make sure about some other things that should have to include in your loan agreement.
For a more detailed and exclusive legal aid, dont hesitate to get the personal and business loan agreement templates from Net Lawman.
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Tags: paragraph, corporations, sum of money, jurisdiction, collateral, due date, secured loan, unsecured loan, lump sum, legal contract, loan contract, high interest rate, rate loan, legal document, instalment