Personal Loan Agreements suitable for individuals and businesses

Published: 12th March 2012
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What is a loan agreement?


Everyone considers the loan to fulfil the personal needs or to enhance and promote the business. The document that records the details of the loan is called loan agreement. The parties to the loan agreement are called lender and borrower.  A loan agreement must be in written form in order to enforce its terms. Usually, the loan agreement is mad between:

•             Individuals;

•             Corporations;

•             Individuals and corporations.


Personal loan agreement


Credit Contracts and Consumer Finance Act 2003 (the Act) commenced on 1 April 2005, and it regulates the personal loan. It is the legal obligation of the lender to furnish the relevant information to the borrower before entering into the loan contract.. Personal loan agreement is a simple agreement, and it does not involve legal technicalities as compare to commercial loan agreement. A personal loan agreement is also known as Consumer Credit Contract


Secured and unsecured loan


A loan agreement can be secured or unsecured. The line of distinction between secured and unsecured loan is that a secured loan agreement requires the collateral but unsecured loan contact does not involve the collateral. Unsecured loan is always based on high interest rate.


Provisions of the loan agreement


A loan agreement must be in the written form because it records the intentions of the both parties. It is very easy to prove the written terms in the court. A written loan agreement protects the interest of the lender and borrower. Loan agreement must incorporate the fair and reasonable terms. A loan agreement must be precise in all aspects. The loan agreement must contain the following important terms. Such as;

•             Date of agreement

•             Advance amount

•             Amount of loan

•             interest rate

•             repayment plan


Interest rate


Interest cannot be charged in advance, and it must be disclosed at the earliest stage of the agreement. It is illegal to impose the highest interest rate. Maximum interest rate can be determined by calculating the daily interest rate of the daily unpaid balance.


Repayment Plan


All the fees and charges must be disclosed to the borrower before entering into the contract, and these must be reasonable. A loan contract must provide the term of the loan. Usually the four methods are used for repayment of the loan. Such as

•             fixed period;

•             lump sum;

•             interest only;

•             Interest and principal.


The contract must disclose the repayment plan. The debtor can repay the loan before the agreed term if it is allowed by the agreement.


Cancellation rights


Under the Act, the debtor has a right to cancel the contract within three days after the disclosure has been made.


Fair and reasonable terms


It is the obligation of the lender to fulfil the provisions of the Act. The person loan agreement must contain the fair terms, and it does not create any burdensome. It is the criminal offence to breach any provision of the Act. The difference between loan agreement and promissory note is that the loan agreement is an agreement to lend money which is to be repaid by a set schedule; a promissory note is a type of negotiable instrument, simply a promise to pay an amount at a specific date.


Legal consequences


It is advisable that borrower must read and understand the provisions of the loan agreement. Once the loan agreement is signed, it becomes the legal agreement.


Net Lawman Provides following types of Personal Loan Agreements. Such as:


Loan agreement: unsecured

Standard loan agreement suitable for individuals and businesses. Note, the loan is not secured; therefore this agreement might be better suited to a borrower.


 Loan agreement: secured by guarantor

Comprehensive loan agreement secured by a guarantor. Our most popular loan agreement document - can be modified to  suit your unique circumstances, or used as-is.




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