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If you are planning to borrow or loan money from or to another person or organisation, you should formally record the terms of the agreement in writing. Take a look at how to put a loan agreement together and where to find a free template to help simplify the process.
Loan agreements are binding contracts between two or more parties created to formalise a loan process. A loan agreement is designed to define what the parties involved are agreeing to and for how long.
A loan agreement can be used when an individual or business lends money to another individual or business. A loan agreement is also used when a written payment plan is needed or when the borrower has to repay back in instalments over a specific time period.
There are many different types of loan agreements. They include basic promissory notes between family and friends to more complicated contracts with professional providers like mortgages, credit cards, personal loans and payday advance loans.
Typically, a loan agreement should state the following:
A loan agreement can be an effective document for both lenders and buyers. Here are some of the benefits of using a loan agreement template:
Loans carry a large amount of legal weight. As the loan is a signed agreement, it is a legally binding contract. Breaches of a loan agreement can be severe and can be held up in a court of law. Because there's a lot at stake, it's generally recommended to draft up a loan agreement and show it to a lawyer before signing it.
A loan agreement doesn't have to be a long and complicated document. All you need to do is to have in writing what the lender and borrower have agreed, and protection in case the borrower defaults. Start by having an open conversation with the borrower about how much they wish the loan to be and when you wish to be paid back. Some other questions should be considered in this conversation.
If you are struggling to talk about these issues or can't come to an agreement, perhaps a loan agreement is not the right option. When all terms and conditions have been agreed, it is important to get them on paper.
If the sum is not big and the relationship is trustworthy, a promissory note will help avoid legal issues. If the sum of money being loaned is large and the relationship not trustworthy, a secured loan agreement is a must if you wish to ensure your money is safe. Even if the borrower fails to return the loan as agreed, you will legally be entitled to get your money back.
All the terminology and legal jargon may seem a little daunting, especially if your loan involves a large lump sum or you are unfamiliar with the loan process. Here are some online loan agreement templates.
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