Loan agreements are legally binding contracts signed between two parties or more, for formalizing a loan process. There are loan agreements of different types, such as simple promissory notes between family members and friends as well as contracts of a more detailed nature – such as short-term or long-term payday advance loans, credit card loans, auto loans and mortgages.
There are loan agreement templates available online, which can be used for preparing and individual loan contract for specific use.
What is the Purpose of Having a Loan Agreement?
The primary reason of having a loan agreement is to define:
• What the parties are giving their consent to
• How long the agreement would last for
• The responsibilities of each party in the contract
The contract must comply with the federal and state regulations, which can keep both the borrower and the lender protected in case any of them fails to honor the terms of the agreement. Based on the type of loan that is taken, the loan agreement terms and the federal or state laws governing the performance obligations needed by both parties will vary.
Most types of loan agreement in Alabama clearly define how the proceeds would be utilized. No distinction is made in law according to the loan type for a new car / new home etc, how the old or new debt would be paid off or how legally binding the loan agreement terms are.
The loan agreement that is signed proves that the lender and the borrower have made a commitment that the loan amount would be used for a particular purpose, and also discloses the loan amount that would be repaid and the amortization rate for the same.
Generally, loan agreements include repayment duration, interest rate terms, guarantees, value of collateral involved, covenants etc. Terms of loan defaulting must be detailed clearly, in order to avoid possible legal court action or confusion. If there is a default, the outstanding debt collection terms should mention clearly all the expenses that are involved in debt collection. It is also applicable for parties that use promissory notes.
Author Bio
Carl writes often about legal drafting of rental & commercial lease agreements, loan agreement and bill of sale to help the people in needs. You can find his thoughts at legal documents blog.
