How To Use a Loan Agreement Template and Create a Contract Easily
What Is a Loan Agreement?
A loan agreement is a legally-binding document made between a lender and a borrower. This contract provides a repayment plan and makes the terms of the loan clear. A loan agreement is important because it ensures that the borrower has to pay back the lender. If the borrower fails to deliver, they will suffer certain consequences determined by the agreement.
When Should You Use a Loan Agreement?
You may need a loan agreement in various situations, but some of the most common ones include:
- Personal loans among friends and family
- Business loans
- Commercial loans
- Educational or students loans
- Large purchase loans (vehicles, furniture, etc.)
What Happens if One of the Parties Dies Before the Loan Is Paid Out?
The loan agreement should clearly state what happens in a situation when the borrower or lender dies. The idea is for the loan to still be paid out.
If the borrower passes away, the agreement should state who is responsible for paying the remaining part of the debt. In case there was a co-signer involved when creating the loan agreement, they will be in charge of paying off the debt.
When the lender dies, the borrower will continue to pay out the debt to one of the lender’s beneficiaries. The lender should consider including clear instructions in their Will and Testament on who they wish to get the borrowed money in case they die.
How Are a Loan Agreement and a Promissory Note Different?
Both the loan agreement and a promissory note are legally-binding contracts for loans. The main difference between the two is that the loan agreement is more detailed and formal than the latter one.
A loan agreement needs to include:
- Clauses about the entire agreement
- Changes of the agreement terms
- Additional expenses
You will usually use a loan agreement when dealing with large-amount loans or multiple lenders. Promissory Notes are a good choice for loans from individuals or companies instead of banks or credit unions.
What Is the Info Every Loan Agreement Template Should Include?
If you were ever in a situation where you lent money to an individual but never got it back, you probably don’t want to go through the same situation twice. Making a loan agreement should help you with this problem, but there is more to it than someone scribbling down a promise to pay you back on a piece of paper.
Take a look at the table below to see the info you should include in a loan agreement that can protect your interests:
|Info To Include in a Loan Agreement||Explained|
Lender and Borrower Information
Details of the Loan
Late Fees and Consequences
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