A loan agreement can be a complex document. Before taking out or providing a loan, it is crucial that you understand every aspect of your loan agreement. This will ensure that you are not signing yourself to be legally responsible for something that you were not prepared for.
Types of Loan Agreements
There are two types of loan agreements: unsecured and secured loan agreements. Unsecured means there is no security against the loan should the borrower end up in default. A secured loan, on the other hand, ensures the lender can recover its money by taking possession of the borrower’s asset(s), selling them and using the sales proceeds to repay the debt. The majority of loans, such as home loans, are secured against an asset.
Why you need a Loan Agreement?
Before you lend anyone any money or provide services without payment, it is important to know if you need to have a loan agreement in place to protect you. You never really want to loan out any money, goods, or services without having a loan agreement in place to ensure that you will be repaid or that you can take legal action in order to have your money recouped. The purpose of a loan agreement is to detail what is being loaned and when the borrower has to pay it back as well as how. The loan agreement has specific terms that detail exactly what is given and what is expected in return. Once it has been executed, it is essentially a promise to pay from the lender to the borrower.
Borrowing money is a big commitment no matter the amount, which is why it is important to protect both parties with a loan agreement in place. A loan agreement not only details the terms of the loan, but it also serves as proof that the money, goods, or services were not a gift to the borrower. That is important because it prevents someone from trying to get out of repayment by claiming this. Even if you think you may not need a loan agreement with a friend or family member, it is always a good idea to have this in place just to make sure there are no issues or disagreements over the terms later that could ruin a valuable relationship.
If you are trying to determine whether you need a loan agreement, it is always better to be on the safe side and have one drafted. If it is a large sum of money that will be repaid to you, as agreed upon by both parties, then taking the extra steps to ensure that the repayment takes place is well worth your time. A loan agreement is designed to protect you so when in doubt, create a loan agreement and make sure you are protected no matter what happens.
There are several components of a loan agreement that you will need to include in order to make it enforceable. If you want to loan someone money or find out more about your rights and options, Straits Lawyers are here to help. We are now offering online services in both English and Chinese.
Simply book an online consultation with us via this link: https://straits-lawyers.square.site/product/online-consultation-/11?cs=true or email us at email@example.com or call at 08 8410 9069 to arrange an appointment.
Please note that this article does not constitute legal advice and Straits Lawyers will not be legally responsible for any actions you take based on this article.