Loan Agreement Details
What is a Loan Agreement?
A Loan Agreement, also referred to as a term loan or loan contract, is created when a lender agrees to lend money to a borrower. The loan contract acts as an enforceable promise between the parties where the borrower must pay back the lender according to a payment plan.
When is a Loan Agreement used?
A Loan Agreement can be used when an individual or business lends money to another individual or business, in which a written payment plan is required for the borrower to repay the amount back in installments over a predetermined time period.
Creating your payment plan:
The payment plan you choose to use in your Loan Agreement depends on how the borrower will make payments. There are typically four options:
- Lump sum payment at the end of the term: the borrower pays the entire amount back in one lump sum on a specified date or upon demand.
- Regular payments: the lender specifies the amount and interval they wish to receive payments from the borrower. Any remaining balance is paid at the end of the term.
- Regular payments towards principal and interest: if the money is lent on a rate of interest, the lender can choose for the borrower to make regular payments that go towards the principal, as well as the interest as it accrues. There will be no large payment at the end of the term as the payment amount is calculated to pay off the principal and the interest by the end of the term.
- Regular payments only towards interest: the borrower pays installments towards the interest only, and pays the principal amount back at the end of the term.
What is term length?
Term length refers to the date when the loan will need to be paid back to the lender. If the lender issues a notice to repay, the borrower must pay back their loan within a certain time period after the notice is served.
What is interest?
Interest is usually a percentage of the principal amount. It is charged on the outstanding amount owed to make up for the cost of inflation as well as to reimburse the lender for the risk and opportunity cost of lending his or her money to a borrower.
What is collateral?
Collateral or security may be used to secure the repayment of a loan. It is usually a tangible asset, such as a vehicle or other asset worth the equivalent of the loan itself.
If the borrower defaults on their loan payments, the lender can go to court to foreclose the collateral to remedy their loss. Collateral is typically used when a significant amount of money has been lent, there is a high chance the borrower may default, or where the lender is also selling the collateral to the borrower.
Where can I use this Loan Agreement?
You can create and customise this Loan Agreement for the following regions:
- Northern Ireland