Borrowing money is an obligation , draft a loan agreement, protect your side

Borrowing money is an obligation , draft a loan agreement, protect your side

What is a loan agreement?

Borrowing money is an obligation despite the amount. This is why it is important to protect both parties with a loan agreement in place. Loan agreements not only detail the terms of the loan, but it also serves as proof that the money, goods, or services were not a gift to the borrower.

A loan agreement is a very complex document that can protect the two parties involved. In most cases, the lender creates the loan agreement. And the trouble of including the terms for the agreement falls on the lending party. Unless you have created loan agreements before, you will likely want to make sure that you completely understand all the components. So you do not leave out anything that can protect you during the lifetime of the loan.

Whatโ€™s important when drafting a loan agreement?

If youโ€™re at the point of taking out any kind of loan? Then you should be familiar with the contract that will dictate the terms of that loan. Your loan agreement will tell you about responsibilities and expectations on both the lender and borrower sides.

Loan agreements, in part, make sure banks can lend money with ease. To do so, they must manage the risk of default. This is by giving borrowers clear, consistent terms for repayment.

A loan agreement with clear terms and repayment guidelines can help save personal relationships. This could otherwise be ruined by money misunderstandings.

A loan contract can be violated in many ways. On the borrower side, a violation may occur when a lender determines that the borrower is in default. The default can happen for a variety of reasons, from missing payments to misusing loan funds.

In this case, the lender can demand funds repaid in full.
Also, the borrower may have to agree to pay all costs of collecting delinquent payments and reasonable attorneysโ€™ fees.

On the lender side, it is rare that a loan agreement gets violated. Yet, lenders that engage in predatory lending practices. Also illegal debt collection practices could be violating state and federal laws that forbid these kinds of activities. it is thus advisable to always follow up with a loan agreement as your complexity of the loan grows.

Components of a loan agreement

  1. Interest
    • Fixed fee rates
    • Floating rates
  2. Default interest
  3. Prepayment
  4. Events of default
    • Cross default
    • Breach of a loan agreement
    • Non payment
    • Insolvency
  5. Committed or uncommitted loan agreement
  6. Repayment on demand or fixed term
  7. Secured or unsecured
  8. Whether the loan is Bilateral or syndicated

Would you like us to draft a loan agreement for you? or have any questions regarding loan agreements? please feel free contact us.

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