A loan agreement is a legally binding contract between a lender and a borrower and can be used for many different types of borrowing, whether it’s a business loan, mortgage, vehicle loan, advance loan or a simple loan between friends or family.
What Is It For?
The purpose of a formalised loan agreement is to set out what each party is agreeing to, what their obligations are and how long it will last. It should protect both parties in case either of them fail to honour the terms, and once signed, provides proof of the commitment made in case there is any dispute.
Even if you are loaning money to a friend, the Independent advises that it is worth speaking to a solicitor and getting a loan agreement drawn up to avoid any misunderstandings later down the line.
Key Terms
Most people are familiar with well-known terms such as interest rates and repayment methods, but there are other terms which may be included in a loan agreement that are less well known, such as covenants and indemnities.
The agreement should include the amount of money being loaned, any applicable interest, details of repayment and what penalties will be incurred in the case of missed payments or early redemption.
It is worth getting legal advice about what should be included, and it’s important to be very clear about the Loan Agreement Info and what is entailed.
Many terms are the same for most types of loan agreement and include Conditions Precedent, describing what needs to be in place before the contract comes into effect, and the Facility, describing the sort of loan involved, and Indemnities, which are costs incurred by the lender which the borrower agrees to pay back under certain circumstances set out in the facility agreement.
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