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Loaning or borrowing money is a big decision for everyone involved. Whether you're doing the lending, or you're the one who needs a little cash infusion, a Loan Agreement can prevent misunderstandings and disagreements by clearly setting down the terms of the loan and repayment.
Use a Loan Agreement if:
You are loaning money to someone and want to set out the terms.
You are borrowing money from a private party and want to outline the terms.
You wish to prepare an amortization table if the loan will include interest.
You wish to determine the monthly payment amount on the loan agreement.
Loan Contract, Personal Loan Agreement, Business Loan Agreement, Money Lending Agreement
When to use a Loan Agreement:
Whenever you’re loaning out a significant amount of money, it’s a great idea to put it in writing. A Loan Agreement is especially smart if you’re loaning to someone you don’t see regularly, but really should be used whenever a sizable sum is being borrowed.
In fact, a Loan Agreement isn’t just smart for the lender; it’s a good move for the borrower as well. Having the details of the sum, the interest, and other important provisions makes sure that everyone keeps up their end of the deal. The borrower knows what’s expected and the lender can’t suddenly change the repayment scheme if they fall on hard times or get greedy.
Important details to include in your Loan Agreement:
Typically, the lender will create the Loan Agreement and the borrower will agree to it. That’s not always the case, of course, but it is generally. It’s a smart idea for the borrower to consult with a lawyer to make sure the loan is fair.
Here are a few important parts of every good Loan Agreement:
Amount: Obviously, you’ll want to spell out exactly what’s being borrowed, as well as the interest involved.
Repayment plan and options: You should decide exactly how the loan is repaid (monthtly, as a lump sum, etc.) and what the due date on the loan repayment is, if any.
Collateral: Typically, collateral is put up a loan. This gives the lender security in knowing that if the loan isn’t repaid, the lender will be able to take control of what was offered. Large, physical assets, such as a car, are often put up as collateral.
Late fees: Occasionally, a borrower will miss a payment. Having a late fee in the Loan Agreement discourages delinquincy, as it increases the overall cost of the loan to the borrower. Note that, at the lender’s discretion, this can be waived. After all, cars break down, health care can be expensive, things happen. But the possibility of a late fee often keeps the loan on schedule.
Consigner: If the lender is unsure of the borrower’s ability to repay, a cosigner can be used to help secure a loan. This is quite common for younger borrowers who haven’t established good credit yet.
Loan sales: Whether its that the lender has fallen on lean times or they simply can’t deal with the loan anymore, you may include a provision that allows the loan to be sold. A third party will purchase the loan for a percentage of the original and try and recoup what it can.
Other documents for money lending:
If you're using a Loan Agreement, chances are you might need one of the following:
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Copyright 2015 Rocket Lawyer Incorporated. Rocket Lawyer provides information and software only. Rocket Lawyer is not a "lawyer referral service" and does not provide legal advice or participate in any legal representation. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. For legal advice, please contact an attorney. Use of RocketLawyer.com and RocketLawyer On Call® is subject to our Terms and Conditions and the On Call Terms of Service.
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