A Loan Agreement is a legal document that records the terms and conditions between a lender and a borrower. Whether it’s a loan between friends, family members, or through a formal financial institution, having a written loan agreement ensures clarity and protects both parties from misunderstandings or disputes.
What is a Loan Agreement?
A Loan Agreement is a contract where one party lends money to another with an agreement that it will be paid back, often with interest, over a specific period. It clearly defines the amount loaned, repayment schedule, interest rate, and any penalties for late payment.
Importance of a Loan Agreement
- It acts as proof of the loan.
- Helps prevent future disputes.
- Protects both the lender and the borrower.
- Ensures legal enforcement in case of default.
Basic Format of a Loan Agreement
LOAN AGREEMENT
This Loan Agreement is made on [Date] between:
Lender: [Full Name, Address]
Borrower: [Full Name, Address]
Loan Amount: ₹[Amount]
Date of Disbursement: [DD/MM/YYYY]
Interest Rate: [e.g., 8% per annum]
Repayment Schedule: [e.g., Monthly EMI of ₹____ on or before the 10th of every month]
Loan Term: [e.g., 12 months]
Late Payment Penalty: [e.g., ₹___ or ___% of due amount]
Terms & Conditions:
- The borrower agrees to repay the loan as per the agreed schedule.
- Prepayment is [allowed / not allowed].
- In case of default, the lender can take legal action.
- Both parties agree to the above terms willingly.
Signature of Lender: __________________
Signature of Borrower: ________________
Witness 1 Name & Signature: ________________
Witness 2 Name & Signature: ________________
Final Thoughts
A Loan Agreement is simple but powerful. It protects the interests of both lender and borrower. It’s always a good idea to have one, even for personal loans, to avoid future complications. You can customise the above format based on your needs or consult a legal expert for detailed clauses.
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