Personal Loan Agreements: What Are They?

Answer 1

A personal loan agreement is a legally-binding document that guarantees a person will repay a granted personal loan. This document will contain all of the necessary information with regard to the loan, such as the interest rates and terms of repayment and more. Both the lender -- which may be an individual or a financial institution -- and the borrower must sign the personal loan agreement.

In the instance of a personal loan, its very nature means there is money being loaned to a couple or an individual. When two people promise to repay the personal loan, this is known as a cosigned loan. Keep in mind that if a person agrees to cosign a personal loan for another person who needs it, that means that both individuals will be responsible for paying back the loan. In other words, if the person stops repaying it, the cosigner is then legally obligated to continue doing so.

There are some bits of specific information that will be present on just about any personal loan agreement. This includes the complete names and addresses of all of the individuals involved, the size of the loan, the date on which the loan was given, the amount of payments and for how much they will be, the interest rate and the maturity date at which time the loan must be fully repaid. Normally, personal loans will come from a financial institution such as a bank, and they are usually unsecured.

With unsecured loan, this means that the borrower does not put up any collateral in order to secure the loan, which would be repossessed in the event of a default on the loan. For example, if an auto loan is not paid, the vehicle purchased with the loan would be taken. However, in an unsecured loan, this security is absent. Because of this, most people will find that the interest rates on an unsecured personal loan are generally higher. On the other hand, it is possible to put up a car or a home as collateral in order to obtain a secured loan, or to obtain a line of credit. All of these types of loans require a personal loan agreement.

This may also refer to loans between friends or family members. Even in this case, it is best to create a simple personal loan agreement to ensure that it is understood the money is not being gifted but is a loan. Various websites feature sample agreements that can be printed.