Loan agreements are binding contracts between two or more parties to formalize a loan process. The main purpose of a loan contract is to define what the parties involved are agreeing to, what responsibilities each party has and for how long the agreement will last.

The Important Points while Drafting a loan Agreement are-

  1. Involved Parties – This refers to personal information about the borrower and lender that should be clearly stated in the loan agreement. That information should include the names, addresses, social security numbers and phone numbers for both sides.
  2. Loan Amount -The agreement should clearly mention the loan amount which the borrower is receiving.
  3. Interest Rate – The Agreement must mention if an Interest rate is added to the principal amount. Lenders can also charge compound interest where the principal amount is charged with interest as well as any interest that has accumulated in the past. The interest rate can also be increased based on mutual consent of the Lender and the Borrower of the Loan
  4. Period of Loan – It is important to ascertain the period of paying the loan. Accordingly monthly installments would be ascertained along with the interest rate added per month.
  5. Method of Payment -The agreement must also mention the payment method details on how the borrower plans to pay the lender.
  6. Collateral – This is a very important clause to guarantee the security to the Lender. The Agreement must include the collateral against which the loan is guaranteed.
  7. Repayment -This can be done in two ways which is on Demand and A Fixed Period
  8. Dispute Resolution – The Agreement must also consist of the Settlement Route which would be taken by both the parties in case of Dispute..
  9. Signatures of the Lender and the Borrower – The Agreement would be valid only when both the Lender and the Borrower’s consent to the agreement. Such consent is captured through the signature of Tenant and Landlord.

These are the main requirements while a person is Drafting a Loan Agreement between the Lender and the Borrower