A Loan Contract is an agreement that is legally binding and establishes the formality of the loan process being implemented between two or more parties. Loan Contracts vary according to type and depend on the type of loan being made and the deal established by the borrower and the lender.
A Loan Contract usually includes a covenant, the terms of interest, the length of time it will take to pay up the loan, and the collateral involved. Our Contract Forms are guaranteed to cover the important and most necessary details required, whether you’re looking for Loan Contract Forms, Marriage Contract Forms, or even Land Contract Forms.
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The Importance of Using Contracts in Loans
In a world where money fuels most of our actions and activities, loaning it requires a huge amount of financial commitment and trust. Unfortunately, both trust and commitment cannot be guaranteed nowadays, which is exactly the reason why Loan Contracts are essential when lending money to borrowers.
Loan Contracts serve as tangible evidence that proves that the money given to the borrower was not a gift but was actually borrowed and needs to be repaid – with interest.
How to Construct an Enforceable Loan Contract
Indicate the Type of Loan and the Loanable Amount
The initial part of the Loan Agreement should state specific details about the type of loan made, the amount of money being loaned, as well as the specific conditions that the borrower needs to meet in order for the loan to be approved. Loan types could be varied and could range from a house loan, a car loan, a student loan, and vice versa.
State the Drawdown Date
Loan Contracts need to specify the date on which the amount being advanced by the borrower is given. This date is referred to as the Drawdown Date and is typically set by the lender. Depending on the type of loan and the deal established between both the borrower and the seller, the Drawdown Date may be given in lump some or through installments.
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State Its Purpose
Stating the use or the exact purpose of the loan in a Loan Contract is important because loans are usually approved and their interest rates are determined through the purpose of the loan. For example, a house loan will incur a different interest rate and will have a different risk profile from that of a car loan.
Conditions Precedent refer to the the requirements or conditions that a borrower has to obtain in order for him to get his cash advance or the amount of money being borrowed. Conditions are usually given by the lender and will differ depending on the purpose of the loan, the amount of money being borrowed, and the risk potential of the loan made.
The business of loaning money should not be taken lightly. A Loan Contract has to be carefully constructed and should state important facts that are needed to prove as reference when a dispute arises.
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