What is a Loan Agreement?

What is a Loan Agreement?

A loan agreement is a type of agreement between two parties where one party (the lender) provides a specific amount of money to the second party (the borrower) for a specific amount of time and with provisions, such as interest. It is a legally binding contract and must specific all aspects of the agreement so that both parties know what to expect when entering into this type of contract.

Types of Loan Agreements

There are two different types of agreements when it comes to loans. This can either be a commercial loan, which means the lender is a bank or other financial institution, or it can be a personal agreement between two private citizens. Although a private consent for a loan may not need to follow government regulations, it is always a good idea to do so in case of a disagreement or dispute later on in the process.

Standards and Regulations

Depending on where the agreement is being drafting and signed, federal, state and local laws may govern certain terms of the contract. Many of the standards and regulations that apply to this type of agreement are in place to protect both the lender and the borrower from unfair terms.

Compliance with state and local regulations will provide both parties with the ability to take the contract to court for disputes or nonpayment of the loan.

Terms of the Agreement

A loan agreement can have a wide variety of terms and conditions written into it. Common terms to include in this type of agreement are the amount being loaned, fees that will be charged, interest rates that will be charged and the repayment terms, specifying when payments will be made and when the loan will be paid off.

These agreements can also provide terms that are specific to the situation or relationship between the two parties. These terms can include securitization, waivers to release parties from the responsibility of certain regulations and language provisions. Other terms to the agreement can be added as necessary if both parties agree on those specific terms.

While a loan agreement can seem simple, it must follow all state and local laws in order to be a legally binding contract. For lenders and borrowers, it is important to have an expert draft the agreement so that it can meet the terms of both parties and still meet or exceed all standards and regulations for the court system.

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