What are Loan Agreements: A personal loan comes as an ideal solution for anyone looking for funds during an emergency or simply to fulfill a wish. However, the Reserve Bank of India’s data shows in the fiscal year of 2022, 9,103 loan fraud cases have happened till now. This indicates while applying for a personal loan is easy, many borrowers lack basic knowledge about their safety.
While applying for a personal loan, you must know the basics to keep yourself safe. The lender will also have to make sure that they are giving their money into safe hands.
Safety regarding a personal loan starts with a loan agreement – a legal document that answers every question related to a lending process for both, the borrower and the lender!
What is a Loan Agreement?
The first thing that you might be wondering is, what exactly is a loan agreement? In simple terms, a loan agreement is a document that consists of everything about the loan that you have applied for.
This loan agreement is concrete proof that a lender has borrowed you a specific amount of money, and you will repay that amount within a particular tenure.
It will also consist of information about the process or medium of payment that you both (lender and borrower) have agreed on. This is a legal document, and it binds both borrower and the lender with an agreement.
Now that you know the basics, let’s dive into more.
A personal loan agreement is presented for both a secured personal loan and an unsecured personal loan.
- Secured Loan: A secured loan is supported by collateral. For example, when a person takes a loan based on a mortgage or similar, that loan is backed by collateral. The agreement will consist of data that if the borrower fails to repay the loan in the future, then the lender will have the right to have complete possession of the collateral.
- Unsecured Loans: Unsecured loans are not supported by any collateral, and the agreement for such loans typically consists of the identity proof of both parties along with the loan amount, the repayment tenure, and similar things. This agreement legally binds the borrower and lender to stay true to the words written in the contract.
Loan agreements make the process of lending safe for both parties. There are some of the common factors that every personal loan agreement has. These include:
- The Name of The Lender: Full name of the lender along with the organization’s details.
- The Name of The Borrower: Borrower’s full name, supported by identity proof.
- The Addresses of The Lender and The Borrower: Proper addresses verified by letters or similar are included within the loan agreements.
- The Entire Loan Amounts: Correct value of the loan amount being paid and the amount that will be received.
- Details About Repayment Tenure: The repayment tenure can vary, and the agreement will consist of more information about the time period between which a borrower is bound to repay.
- Information on The Collateral (Value): In cases of secured personal loans, the value of the collateral has been mentioned in the agreement because, generally, the loan amount depends on the collateral itself.
- Information About Guarantor: If there is no collateral, then the details about the guarantor have been added to the agreement. It makes the lending procedure more reliable since the lender can have safety.
- Monthly Instalment Details (If Any): An agreement will have precise details about the monthly installments if the borrower has opted for them. It will have clear information about the monthly charges levied on the installments.
- Proper Details About The Interest Rates: Any loan agreement will clearly state the rate of interest levied on the loan.
- Traditional Terms And Conditions: Loan agreements include detailed descriptions of the lender’s terms and conditions. This might consist of clauses regarding arbitration, foreclosure, late payment, etc.
- Additional Terms And Conditions, Including Penalty Charges: This includes late penalties and different interest rates based on any clause or similar factors.
Overall, loan agreements contain everything you need to know while applying for personal loans!
Now, let’s look into some of the reasons why a loan agreement is essential!
- The main reason behind a loan agreement is to legalize the verbal agreement between the lender and the borrower. A loan agreement legally seals a deal by ensuring that both parties are equally committed.
- A loan agreement clearly states the terms and conditions associated with a personal loan. It consists of a detailed explanation of them and provides more clarity.
- Loan agreements are there to protect the rights of both parties. It ensures that neither party uses any unlawful method to cheat the other. It helps lenders secure their money and keeps the borrowers safe from being cheated.
- Any loan agreement includes detailed information about the levied interest rates. The borrower can manually calculate the amount or use a Personal Loan EMI Calculator! It saves the borrower from any kind of confusion. It also ensures that the borrower is not charged by illegitimate means.
- A loan agreement works as a document to establish that a borrower is bound to repay the loan or that the lender is eligible to take charges against them. Even if no collateral is involved, a borrower will still face issues for not repaying the loan timely as per the agreement!
- A loan agreement also secures the rights for both parties to take matters to the legal authorities in cases of breach of the agreement!
While applying for personal loans online is much simpler with leading financial institutions like Clix Capital, a personal loan agreement ensures safety and security for everyone.
Knowing the basics about these agreements will help you keep yourselves safe in future from the potential frauds. A loan agreement is a legal document that answers every question related to the loan.
Now that you know about these agreements, check thoroughly before accepting any loan from a lender!
