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Lending money to friends or for business requires a written loan agreement to ensure clarity and protect all parties involved. A well-crafted loan agreement form protects both the lender and borrower, clarifying the terms and preventing misunderstandings. It serves as legal proof of the debt and repayment terms. In this post, we’ll walk you through the key elements to include in your lending agreement form. You will also find useful templates to create your own borrowing agreement form for both personal and business loans.
Key Components of a Loan Agreement
Here are the essential items your loan agreement form sample must cover:
Parties Involved
Clearly identify the lender and borrower with their full legal names. Include addresses and contact details for both parties.
For example:
This Loan Agreement is entered into between:
Lender: Amit Sharma, residing at A-303, Sunshine Apartments, Bandra (W), Mumbai – 400001
Borrower: Neha Patel, residing at 14, Rose Villa, Santacruz (E), Mumbai – 400002
Loan Amount & Interest
Specify the exact principal amount being loaned, along with the interest rate and how it’s calculated. Mention whether the rate is monthly or annual.
A sample loan agreement might state:
The lender agrees to loan the borrower the principal sum of ₹5,00,000 (Rupees Five Lakh only). Interest will accrue at 1% per month, compounded monthly.
Repayment Schedule
Outline a clear schedule of when and how the borrower will repay the loan. Break down the number of payments, amounts, and due dates.
You can present this as a table in your loan agreement template:
|
Payment No. |
Amount |
Due Date |
|
1 |
₹8,500 |
5-Jan-23 |
|
2 |
₹8,500 |
5-Feb-23 |
|
3 |
₹8,500 |
5-Mar-23 |
Late Payment Fees
Specify any penalties the borrower must pay for late payments.
For instance:
A late fee of Rs 500 will apply if payment is not made within 7 days of the due date.
Collateral (For Secured Loans)
If the borrower provides collateral, describe it in detail, including its appraised value.
An example loan agreement clause could be:
The borrower shall provide their vehicle, a 2020 Honda City (Reg. No. MH-01-AB-1234), as collateral for this loan. The vehicle has been valued at ₹8,00,000 by XYZ Appraisers.
Default Consequences
Explain what happens if the borrower defaults on the loan. This involves the lender’s right to seize collateral or demand immediate full repayment.
A borrow agreement form sample might include the following:
In the event of default, the lender may take possession of the collateral vehicle. The lender can sell it to recover any unpaid loan amounts.
Governing Law
Specify which state’s laws govern the agreement. This is important in case of any legal disputes.
For example:
This agreement shall be governed by and construed in accordance with the laws of Maharashtra, India.
Signatures
Provide space for both parties to sign and date the agreement, making it legally binding. It’s wise to have a witness sign too.
Using Loan Agreement Templates
While you can draft a loan agreement from scratch using the checklist above, templates make the task easier. Here are two downloadable templates crafted by legal experts:
-
Personal Loan Agreement Template
-
Business Loan Agreement Template
Simply fill in your specific terms in the placeholders. For added security, consider having your final loan agreement paperwork reviewed by a lawyer.
Conclusion
When you’ve signed your loan agreement, the next step is transferring funds securely to the borrower’s account. With the Airtel Thanks App, you can send money instantly to any bank account or mobile number. Plus, you can set up automatic payment reminders for the borrower, ensuring timely repayment.
If you’re seeking a personal loan for yourself, Airtel Finance Personal Loans offer competitive interest rates. Along with this, they provide easy eligibility criteria, and quick processing. Check your loan offers and apply within minutes on the Airtel Thanks app.
Carefully draft your loan agreement form and choose a trusted money transfer partner like Airtel Finance. Then, you can lend and borrow with confidence. Go ahead and put your loan terms in writing today – your future self will thank you!
FAQs
1. What is a loan agreement, and why is it important?
A loan agreement is a legal contract that details the terms of a loan between a lender and borrower. It’s essential for preventing misunderstandings and protecting both parties’ interests.
2. Is a loan agreement legally binding?
Yes, a loan agreement signed by both parties is a legally enforceable contract. It can be used as evidence in court if any disputes arise.
3. How do I create a simple loan agreement?
To create a basic loan agreement, include the names of the lender and borrower, loan amount, and interest rate. It also involves a repayment schedule, late fees, collateral (if any), default consequences, and governing law. Have both parties sign and date it.
4. What is the difference between a loan agreement and a promissory note?
A loan agreement is a detailed contract outlining all the loan terms. Meanwhile, a promissory note is a simpler document where the borrower promises to repay a debt. Loan agreements offer more legal protection.
5. Can I use a loan agreement template for both personal and business loans?
While the basic components are the same, it’s best to use templates designed for the specific loan type. Personal loan agreements may be simpler, while business loan agreements often include more clauses related to the business.
