What is a Loan Agreement?
A Loan Agreement is a document between a borrower and lender that details a
Why should I use a Loan Agreement?
Using a Loan Agreement protects you as a lender because it legally enforces the borrower’s pledge to repay the loan in regular payments or lump sums. A borrower may also find a loan contract useful because it spells out the details of the loan for their records and helps keep track of payments.
What can you use a Loan Agreement for?
- Business loans, such as capital for a startup business
- Purchases, such as a vehicle, boat, or furniture
- Real estate loans, such as a down payment on a home
- Student loans for tuition and other educational expenses
- Personal lending between friends or family for debts or bills
What does a Loan Agreement include?
Loan agreements generally include information about:
- The location. People usually choose the lender’s location for the Loan Agreement, but if the agreement is for the purchase of assets, then the parties might choose to list the location of the assets instead.
- The lender and borrower. These details include name, address, and whether the lender or borrower is an individual or a corporation. You may also add a co-signer who agrees to pay the debt if the borrower defaults on the loan.
- The loan amount. The amount of money being lent to the borrower is the loan amount.
- Interest and late fees. If the lender charges interest, they may specify the percentage of interest and how often it’s compounded (monthly, every six months, or yearly). The lender may also penalize overdue payments by charging late fees or increasing the interest rate.
- Repayment method. The borrower may repay the loan in a single payment or regular payments. The agreement should outline the repayment schedule, when the final amount is due, and if the borrower can repay the loan early or in lump sums.
- Collateral and insurance. The borrower may secure the loan with collateral such as a vehicle, equipment, or jewelry. In this case, the lender may seize the collateral if the borrower cannot repay the full loan amount. The lender may also require the borrower to obtain insurance if using the loan to buy a vehicle.
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