Loan Contract Template

The standard loan agreement is a formal written instrument that delineates the contractual provisions governing the lending and borrowing of funds between a creditor and a debtor. Loan agreements that conform to standard practices are documented in a legally binding contract and are often regarded as being more uncomplicated than alternative loan agreements. Furthermore, the process of formalizing the loan provides protection to both parties against potential future disagreements.

Typical loan agreements delineate provisions such as the quantum of disbursal, conditions for repayment, and obligations pertaining to reporting. Loan agreements frequently entail collateral and, as a result, necessitate the inclusion of collateral value within the loan agreement. Loan agreements of a standard nature are commonly employed in various domains such as real estate transactions, student loans, car loans, and even personal loans between two parties.

Loan agreements usually include transaction details like:
· Loan Amount
· Borrowers receive a loan amount.
· Interest rate
Lenders charge interest to mitigate risk. Interest is usually presented as a percentage of the principal, which is added to the lent amount. The transaction fee is fixed at contract signing, but if a borrower misses or pays late, it might be increased. Lenders can also impose compound interest on the principal and prior interest. The interest rate rises marginally.
· Contract Length
An amortization schedule defines a borrower’s monthly payments and a loan’s lifespan. The amortization schedule divides the loan amount by the number of payments needed to repay it. After then, monthly payments include interest. Though each monthly payment is the same, early payments go toward interest and later payments go toward principle. Unless there are early repayment penalties, a borrower should pay the loan as soon as possible to reduce interest.
· Payment Method
How the borrower pays the lender is the payment method. That’s how:
 
· A single payment at the contract’s end.
· Periodic payments
· Regular interest-only payments
· Regular principle and interest payments
· Repayment Schedule
· Two loan payback arrangements exist:
Demand loans are short-term, collateral-free loans for small amounts. Only friends and family use this payback schedule. If they trust the borrower, banks may employ demand loans. The main difference between a demand and a fixed loan is that the lender can demand repayment at any time with appropriate notice. The loan agreement specifies notice requirements.
Fixed: Vehicle and automotive loans are usually fixed-term. Fixed loans have a maturity date and a repayment plan in the loan agreement. If the borrower defaults, the purchase, such as a car or house, is collateral. Some fixed loans allow early repayment without penalties, but others do.
· Overdue Payments
Most loan agreements outline the consequences of nonpayment. Late payment breaches a loan, making the borrower liable for the lender’s losses. The lender can:
· Increase the loan’s interest rate till repayment.
· If the loan isn’t returned, seize collateral like jewels, equipment, a house, or a car.
· Credit-score a borrower’s default or violation.
· Borrower/Lender Information
The lending agreement must include:
· Telephone numbers
· Addresses
· SS numbers
Corporate or individual borrowers and lenders depend on the loan’s purpose.