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Loaning money to a friend or family member can be complicated. While most people want to help a loved one in need, few people can afford to just give money away. To ensure a loan is repaid, it is important to construct a written loan agreement. If the borrower refuses to repay the loan, this agreement will help the lender seek legal recourse to obtain what he or she is owed.
How to Construct a Loan AgreementThere are a few ways to construct a loan agreement. You can either write the document yourself or use an online loan agreement template. These templates are offered by many different websites at little or no cost. The advantage of using a loan agreement template is that the document will likely contain all of the information you need to create a binding agreement. If you have never written a loan agreement, you might not be sure what to include otherwise. Businesses and financial institutions can also use these templates when providing loans to consumers.
What Your Loan Agreement Must IncludeFor a loan agreement to be complete, there is certain information that should be included in the document. Most loan templates first list the name and address of both the lender and the borrower(s). The next information should be the loan amount, loan term, and the nature of the loan. This agreement should also include how the loan will be repaid. This includes the size of the borrower's payments and the frequency of his or her payments. If the borrower will be paying the loan in installments, the agreement should state when the payments are due, the interest rate, and any fees.
A loan agreement template should also discuss prepayment penalties, the consequences of making payments late, and the consequences of defaulting on the loan. To protect the lender, the borrower should agree to pay any collections and legal fees the lender incurs while trying to recover payment. While some of these terms might not be necessary, this is the basic information included on most loan templates.
To complete the loan agreement, the document must be signed by the lender and the borrower. For future reference, both the lender and the borrower should be given a copy of the document. Should either the lender or borrower break the loan agreement, the signed document can be used to defend the wronged party in court.
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Setting up a purchase agreement template ?
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Where can I buy a purchase agreement template to use for my office needs?
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There are a few different ways you can go about creating a loan agreement and each of them has their pros and cons mostly centered around cost and what you get for your hard earned dollars. Here we'll go over each of them in detail. First we have: 1) The free loan agreement A simple search for "free loan document" will reveal a number of free loan agreements. Should you use them? Perhaps. If you're comfortable starting with a free loan agreement and making the necessary changes yourself and understand the impact of those changes then certainly this is a low cost approach, assuming the loan agreement fits your needs. 2) The low cost loan agreement There are a number of services out there, both online and offline, that will provide you a template loan agreement form, very similar to what you might find with your free loan document search. The main difference between these providers and the free document providers is that there is assumed to be work that goes into maintaining the document and that it is suited for use as a basis for an agreement. The old adage "You get what you pay for", might apply to this situation as you can at least ask questions of the low cost provider and expect that they have an interest in ensuring you receive the right product for your needs. 3) The low cost loan agreement with added services The next level of offering is a low cost loan document with some additional services to help with the creation of the document as well as helping with the repayment part of the lending process. For a slightly higher fee than just a blank loan document you can receive a more customized loan document as well as additional services like email payment reminders and/or payment tracking. 4) The lawyer The most expensive option of any of them is to simply use a lawyer. Sometimes this is the best option if you need to create a formal document that is non-standard or if you just want to ensure that the document you are creating is appropriate for your situation and that you're not forgetting any important clauses. A less expensive compromise might be to obtain a free or low cost loan document and have a lawyer review the contents before finalizing and signing your agreement. Regardless of the method you choose to create your formal loan document it's certainly good practice to document all terms of any loan you agree to in order to protect the interest of all parties and prevent any misunderstandings down the road.
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