Terms And Conditions Of Loan Agreement

By Author: Robert Mark
Total Articles: 7
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A loan agreement is a contract entered into between a lender and a borrower that spells out the terms and conditions of the loan. The loan agreement can be made between:
• Corporations;
• Individuals; or
• Between individuals and corporations.

However, the parties to the loan agreement are named as lender and borrower. Lender is a person or corporation who gives the money to the borrower as a loan and borrower is a person or corporation who take the money as a loan. The loan agreement furnishes the information about the terms of the loan and also the representations, warranties, and covenants of the borrower. A loan agreement creates the legal obligation of the borrower to repay the amount of loan in compliance with approved terms between the lender and borrower.

The loan agreement can be written or oral. However, it is truly hard to prove the oral agreement in case of disputes. So the courts give the importance to the written agreement because it spells out the intentions of the both parties. So a lender must use a written agreement in order to secure the repayment and to enforce the borrower ...
... to fulfill the all conditions.

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.

The distinction between loan agreement and promissory note is that the loan agreement is an agreement to lend money which is to be repaid by a set schedule; a promissory note is a type of negotiable instrument, simply a promise to pay an amount at a specific date.

The loan contracts are enforceable in 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.

There are different types of loan agreements such as secured, unsecured. A secured loan means the borrower offers an item as collateral for the loan, where as an unsecured loan means there is no collateral.

The loan contract must specify the modes of repayment such as
• whether the loan will be repaid in lump sum, or
• by installment,
• If buy installment on which date the installment will be paid; and
• if the installment is not paid on time then what fine will be charged;
• Interest rate.

The loan template must be signed by the lender and borrower in presence of witnesses. The witnesses must also sign the loan agreement. The borrower before signing the loan document must consider and understand the each provision of the loan agreement form. Once the loan contract is signed, it becomes legally binding.

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