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Making a simple loan agreement: Everything you need to know

Making a simple loan agreement

Financial transactions often result in problems, especially when it comes to loans between friends or relatives.  Lack of repayment of even a small amount is unpleasant. Sometimes even a small loan becomes a matter of big debate. When it comes to larger amounts, the loss could negatively affect your financial well-being and subsequently the risk of conflict between parties increases. Due to misunderstandings between parties of the terms and conditions of the loan and the repayment plan, the relationship between parties may spoil. Many a breakdown of partnerships, friendships, or family relations happened because of financial misunderstandings. Being aware of the terms and conditions is not complicated if you have an agreement that is in accordance with the law.

What is a loan agreement?

The definition of a loan is: cash lended to the borrower on the basis of need, payment, material support or another miscellaneous reason. A loan is a tool of regulation of the terms between a loaner and borrower.

This type of contract is used in financial institutions, such as banks or between individuals. You need a standard contract that complies with all regulations to provide a secure loan experience.Financial institutions provide ready-made documentation for their creditors, while private individuals draw up such documents on their own by mutual agreement, based on each other’s needs.

Legislative documentation

Legislative documentation

Legislative documentation is an integral component of all credit relations with banks and microfinance organizations. A properly composed loan agreement template provides security and guarantees that all the parties shall comply. If the agreement does not comply with law on registration of credit relations, the agreement shall be declared null and void in court.

A loan agreement is a document that sets up the terms on which a lender gives money to a borrower. A loan agreement is drawn up by the lender, in writing in 2 copies. The borrower must sign the agreement if they want to receive a loan. Parties of loan agreement may be: borrower – an individual, a creditor – a legal entity; the borrower is a legal entity, the creditor is a legal entity.

To create an equivalent loan agreement form, you need to take into consideration that documents may vary depending on the specifics of the loan. For example, with an overdraft, a loan agreement allows you to take money at any time (while the agreement is valid), and repay it according to schedule. In other situations, the borrower must return the entire amount of the loan as soon as the bank requests, even if only a few days have passed since the loan.

When does loan agreement become effective?

Woman signing document

The loan agreement becomes effective immediately after the document has been signed by both parties but the loan obligations only become effective upon receipt of money. If a person has signed a credit agreement where the subject of the contract is a non-cash loan with the transfer of funds to a card, he/she must make a payment to the bank only after cashing out or using money from the card. If the client didn’t make use of his/her to receive funds, the loan agreement is canceled.

In the event that one of the parties of the loan agreement is a foreigner, make sure that the agreement is translated properly into both languages. The amount of money must also correspond to the equivalent amount in the original version.

Loan agreement sample content

The content of a loan agreement is not regulated by legislation. This means that the lender has the right to compose a  loan contract template that fits his or her needs. You need to know certain standards of composing a document. The Loan agreement template may need to have the following:

  • Introduction;
  • General statement
  • Subject of the contract
  • Terms of loan
  • Loan settlement procedure
  • Parties rights and obligations
  • Unforeseen circumstances
  • Details of Lender and Borrower

If you are a borrower, before signing an agreement, you should focus on the “Terms of loan” chapter.  Here you may find vital  information on the amount of money, currency, terms, and the interest rate on the loan.

In the loan agreement, the settlement procedure is determined by form of payment: annuity or differentiated. Additionally, the borrower might receive a loan repayment schedule together with the loan agreement, which will indicate the date and amount of payments throughout the loan term.

Up until the loan agreement has been signed, each of the parties has the right to refuse the loan conditions. The most common reason for a denial of loan from the lender is the high risk of non-repayment of the loan and the corresponding interest within the period specified by the contract.

In addition to the consumer loan agreement, banks began imposing mandatory life and health insurance contracts. The Civil Code does not prohibit this, but the bank cannot refuse a loan to a client due to refusal of insurance. Therefore, banks officially give other reasons for the denial of a loan.

For security, regardless of whether a contract was drawn up between legal entities or individuals, each of the parties must carefully check the information before signing and make sure that data is correct. In order to be certain that your loan agreement contains all the obligatory chapters, you can use one of the loan contract templates from the PDF Compressor. It contains simple loan agreement templates like loan agreements between individuals and more sophisticated forms with different details for almost any situation. You can also use one of the loan agreement templates and modify it in your pdf editor by redesigning, merging files or splitting them. You can even make your own  e-signature. If you ever need template modification, use a trusted PDF Editor, like Lumin PDF.

Article Submitted By Community Writer

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