A comprehensive legal agreement that outlines the terms of a loan between a borrower and a lender, as well as set out a payment plan for the borrower to pay back the lender.
What is a loan agreement?
A loan agreement is a comprehensive legal agreement that outlines the terms of a loan between a borrower and a lender, as well as set out a payment plan for the borrower to pay back the lender. It acts as an enforceable promise between the parties.
What does a loan agreement cover?
A loan agreement covers, amongst other things, the loan amount, the purpose of the loan, when and how the borrower can withdraw funds, when and how the loan will be repaid, interest payable, early repayment, whether the loan is secured or unsecured, assurances or warranties given by the borrower, obligations and restrictions on the borrower to help ensure the lender will be repaid, circumstances in which the lender can demand immediate repayment of the loan and more.
When should I use a loan agreement?
You should use a loan agreement whenever you are lending or borrowing money.
Do I need a loan agreement?
A loan agreement is an essential document whenever you need to lend or borrow money. It clearly outlines how and when the loan will be repaid, which will ensure both parties are protected during the lending process.
Collateral or security may be used to secure the repayment of a loan. It is usually a tangible asset, such as a vehicle or other asset worth the equivalent of the loan itself. If the borrower defaults on their loan payments, the lender can go to court to foreclose the collateral to remedy their loss.
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