Loan agreement - what does it consist of and what should it contain?
The loan agreement is the most important document you sign when applying for additional cash. Do you know what it consists of and what should it contain? If not, it's time to catch up with the formalities - this is a very important issue! In the article below, we will present you all the most important information about the loan agreement!
What is a loan agreement?
A loan agreement is nothing more than a document presenting two parties to the transaction: the first who borrows the money and the second, who undertakes to return it. It is concluded so that each party would fulfill its obligations and what it has declared.
Although when talking about a loan agreement, we usually mean a loan company or a bank, in fact, it does not have to be limited to these two entities. You can conclude a loan agreement with anyone - with your family or, for example, with friends, if you are borrowing money from them. Thanks to this, the conditions will be clearly defined, which will allow you to avoid possible misunderstandings in the future.
According to the law, a loan agreement can be concluded even verbally, if both parties have agreed to it, and as long as the willingness to enter into a commitment is clearly and understandable. In this situation, we are most often talking about contracts concluded with family or friends, because the contract with a loan company is ALWAYS concluded in writing.
The exceptions are contracts where the loan amount exceeds $ 1,000 - then it should be written down. For our part, we especially encourage you to write down, not to conclude verbal contracts - even when it comes to the most trusted person. This form allows you to protect yourself against possible unfair claims or doubts.
How to conclude a loan agreement?
If you borrow money from your friends or family (or vice versa - they borrow from you), any document certified by your signatures will be valid. All you need is a regular sheet of paper on which you can write down the conditions to which both sides should adapt. However, it will be best to use ready-made patterns that can be found on the Internet. Then you can be sure that the contract is drafted well and legally. It is a bit different with loan companies, because they already have their own contract templates prepared by the legal department of their company. They expect the borrower to read the terms of the contract and - possibly - sign it if he agrees to them.
What should the loan agreement contain?
There are a few standard elements that every loan agreement should contain. Take a close look at them:
- place and date of conclusion of the contract ,
- data necessary for recognition of both parties - in the case of a natural person, indicate the name and surname, address, ID card number and PESEL number. If it is a natural person, i.e. a company, the identifying data will be: full company name and address of its registered office, NIP, KRS and REGON number.
- subject of the contract - the contract must indicate what is the subject of the contract: it can be a cash loan - then we indicate the amount that should be given in currency, digitally and in words - but it can be e.g. RTV equipment - then we define its value, we write down the exact parameters. We should also indicate the period for which we lend the good to the other party.
- conditions for the return of the loan - at this point, please indicate the manner in which the liability will be returned: e.g. by bank transfer or in cash. We should also indicate whether the repayment will be in installments - and possibly with what frequency, with what amount of interest - or in full.
- statement of the borrower's assets - if we conclude a loan agreement with security, we should specify the form of this security, e.g. a promissory note or a real estate pledge.
- conditions for withdrawing from the contract - here we define what conditions must be met by each party, if it wishes to terminate the contract.
- signatures of the parties - the signature finally confirms the consent to the loan terms and is another element that identifies both parties.
Now you know what a loan agreement is and what it should contain to make it well prepared.
Remember, the loan agreement is the most important element of the entire undertaking. Before you sign it, read its terms carefully. If you are applying for cash with a loan company, pay particular attention to the loan amount, the amount and number of installments, the total amount to be paid, the interest rate and the APRC. Before you sign - check the correctness of your data. Make sure you are able to return the pledge in full. Don't sign a contract if you don't agree with something or have any doubts!