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Loan Agreement

May 14th, 2019 in Finance & Accounts

Loan Agreement

A loan agreement is a document that evidences loan between the borrower and the lender. Moreover, the loan agreement also consists of terms and condition to grant the loan to the borrower. The loan can be obtained from the banks or other financial institution.

A loan agreement plays a vital role like this can be used as a piece of evidence in the court. Through loan agreement both the parties can settle their dispute as it can be served as a legal document. However, to use it as a piece of proof or evidence, both the parties shall sign the loan agreement on a stamp paper.

Loan Agreement Details and Clauses

Here is the list of all the details and clauses that a loan agreement shall contain:

  1. Loan Amount: The agreement of loan shall explicitly express the principal amount of loan given to the borrower.
  2. Loan Duration: At the time of generating loan agreement it is important that it shall mention the duration for which the loan is given to the borrower.
  3. Interest Clause: The loan agreement must mention the rate of interest that has to be paid by the borrower along with the principal. Moreover, the loan agreement also mentions the additional charge the borrower has to pay in case of default.
  4. Repayment Clause: Repayment clause is the most important clause in the loan agreement. This clause mentions how and at what time the loan is to be paid to the lender by the borrower. The loan can be either be paid in instalments or can be a lump sum. In case of if the borrower has chosen the instalment option that it must mention the number of instalment and the due date for the instalment.
  5. Prepayment Clause: The loan agreement shall also contain the prepayment clause. Prepayment of loan is paying the loan before the due date of the loan instalment. Normally, prepayment is admissible when the penalty is levied on the borrower for late or not paying the loan instalment.

Loan security: A loan security is an asset or vehicle that is pledged or mortgage against the loan received. This is helpful in case of default, as the security that is pledged by the borrower can be used by the lender to recover the amount of loan.

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