Loan Agreement

Every person can-not afford all expenses. Our financial needs will not always appear when the person needs them. Earlier, whenever any person needed the money, they would approach their relatives, but now the scenario has changed. Most the persons prefer to take personal loans instead of approaching their family, friends & or relatives. But while making the loan agreement, the borrower must ensure that every little terminology is used correctly.

Before that provisions, let’s understand What is a Loan Agreement?

A Loan Agreement –

A loan agreement is a document or legal contract which consists of all the details about the loan that will formalize the loan process. A loan agreement describes the primary purpose of taking a loan. A loan agreement is beneficial for both the lender and the borrower because if any of the parties perform misconduct, then this loan agreement will act as Evidence.

Following are the main 10 provisions that are essential to have in your loan agreement:

1)  Loan Amount:

The loan amount is the actual or principal amount the borrower receives from the lender.

2)  Interest Rate:

Interest rate consists of the interest rate at which the borrower will pay back the money to the bank.

3)  Entire Agreement:

In this provision, all the terminologies related to the agreement must be mentioned. And all the details about the agreement, like the date of the agreement and the parties involved, must be mentioned properly.

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4)  Length of the Contract:

The life of the agreement is mainly dependent on the Amortization schedule. Here, the Amortization schedule means the borrower’s monthly payments to the bank. More the amount less will be the length of the contract. So, in the loan agreement, all the details about the installments should be mentioned so that the contract’s length can be specified in the agreement.

5)  Method of Payment:

In this provision, the method or mode of payment should be mentioned. The following are the main methods by which the borrower can make the payment in the loan agreement. You can also study abroad under this process and take an education loan for that, with Lowest Interest, especially for students.

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  • One Lump sum amount is to be paid at the end of the contract.
  • Regular installments can be made after the specified period.
  • Regular payment which is specially made for the interest amount.
  • Regular payment which is specially made for the Principal amount.

6)  Re-payment schedule:

It describes how the borrower can do the re-payment. Following are the main two things which include:

  • Demand: It means that whenever the lender needs the money, he can claim or demand from the borrower. In such a case, the borrower can-not reject for making the payment whenever demanded.
  • Fixed: In this repayment schedule, the lender must follow a properly fixed schedule. It means that the borrower pays a fixed amount/installment after a specified period.

7)  Severability:

Severability means dissolvable. In a layman’s language, it means that if any part of the agreement becomes void or invalid, the remaining part of the agreement will remain unaffected and will be enforceable in the eyes of the law.

8)  Default Provisions:

In this clause, all the provisions of default are mentioned that if any of the parties do any misconduct, then the necessary claims can be claimed by the other party. E.g., if the borrower does default, then the lender can claim from him legal fees, court expenses, etc. So, default provisions will help the parties to save from the fraud.

9)  Common Details:

In this provision, all the details about the lender and borrower must specify in the loan agreement. The details are like proper names of the parties, Contact numbers, and Addresses must be there in the loan agreement so that, in the future, there will be no chances of any fraud.

10) Choice of Law:

It determines under which Act or Jurisdiction the agreement is to be governed.

So, above are the main provisions that should be present in the loan agreement. It is beneficial for both parties to have a legal agreement based on mutual understandings and agreed terms so that no one can carry any kind of misconduct. Whether a rough agreement or an official one, you must include the above-mentioned key points in it.

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