WHAT IS A LOAN AGREEMENT?

A loan agreement is a legally binding contract between a lender and a borrower. Written loan agreements are required by federal and state laws for a home mortgage, car and business loans. The loan agreement explains the conditions that a borrower must fulfil in order to receive a loan. For some home loans, this requirement may include an earnest money deposit and or a down payment towards the loan amount.

WHEN DO YOU NEED A LOAN AGREEMENT?

One would need a loan agreement anytime that he or she decides to purchase property for which he or she needs to obtain a loan in order to purchase said item. For example, a borrower would need to sign a loan agreement in order to obtain financing for the purchase of a speed boat.

WHAT IS INCLUDED IN A LOAN AGREEMENT?

The following should be included in a loan agreement:

• He names and salient information on the lender and borrower.

• A complete and accurate description of the property upon which the loan will be based.

• A statement as to how the monies from the loan will be used.

• The amount of the loan and the interest rate must be provided. Also, the type of loan and the interest rate should be included in the agreement.

• The agreement should include detailed information as to what steps will be taken in the event that the borrower defaults on the loan. Some loan agreements have clauses that state that in the event of a default the total amount of the loan becomes due and owing.

• The agreement must include prepayment and cancellation clauses that explain the procedure and ramifications for prepayment of the loan.

• Any late fees and the date that would precipitate the late fees should be included in the agreement.

• Severability should be addressed in the loan agreement. There should be included clear precise language that states that if one section of the loan agreement is nullified the rest of the agreement will still be considered valid.