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What is a loan agreement?
A loan agreement is a contract between a borrower and a lender that spells out the terms of the payment of a loan and the rights and obligations of the lender and the borrower. Loans can be secured or unsecured; that is, it may or may not attract collateral. And there can also be fixed-rate or variable-rate loans. Loans can also vary based on their interest rates and repayment schedules.
While loans can be used for personal or business purposes, there are several types of loans:
- Personal loans
- Business loans
- Family Loans
- Mortgage Loans
- Auto loans
- Credit cards
- Home equity loans
- Payday Loans (PDL)
- Student Loans
What should a loan agreement include?
In addition to the rights and obligations of the lender and the borrower, a loan agreement should include (but not limited to):
- Principal loan amount
- Payment terms
- Interest rate
- Amortization period(s)
- Maturity period or due date
- Legal obligations of parties (lender and borrower)
- Name of parties (Lender, borrower and/or guarantor)
- Address of parties (lender and borrower and/or guarantor)
- Signature of parties (lender and borrower and/or guarantor)
Why is a loan agreement important?
A loan agreement helps protect the lender or borrower in the event of a breach or default. A signed loan agreement is valid proof of the agreement between both parties to be bound by its terms. And it protects the interest of both parties.
In the event of a legal dispute then a loan agreement can be the vital evidence you’ll need to make your case. A loan agreement is also evidence that the money involved was a loan and not a gift. And you can legally enforce the obligations of the other party in the event of breach or default.
When should I use a loan agreement?
You should always use a loan agreement when lending or borrowing money, even if you lending to friends or family. You want to be sure that you’ll be paid back on or before the agreed date. So you should use a loan agreement anytime you want to lend or borrow money. It’s extra security!
How to write a loan agreement?
Writing a loan agreement from scratch is not an easy task and often requires legal expertise. But you can make things easier and start with a template that outlines the essential components of a loan agreement.
You can download our free template in Microsoft Word (.doc), Adobe (.pdf), and copy to your Google Docs account or print a copy online from your browser. All you have to do is answer just a few simple questions, and we will generate your loan agreement in a few minutes.
Remember that a loan agreement allows you to enforce the loan terms, and you don’t have a loan until you have a loan agreement.