What is a personal loan agreement?
A personal loan agreement is essentially a contract between a borrower and a lender which regulates the mutual promises made by each party. Loan agreements are usually in written form.
A well-written personal loan agreement is key to making sure that your financial transaction doesn’t lead to conflict. A personal loan agreement needs to be clear about certain basics.
As a borrower, a personal loan agreement should outline who the parties to the loan agreement are, how much is being borrowed, what the interest rate is, what the length of the loan term is, as well as when payments will be expected.
The personal loan agreement should cover contingencies such as late payments, non-payments, collateral, late fees, lower interest rates and prepayment penalties.
There is usually a cooling-off period from either the date the loan agreement is signed or when you receive a copy of the agreement. This allows you to change your mind should the loan terms not be favourable enough for you.
If your credit rating is less than perfect, you may be charged a much higher rate of interest. The personal loan agreement must specify how much interest you will be charged, as well as any additional fees.
Some loan agreements may include credit insurance, which covers your loan repayments if you have an accident or if you are no longer able to pay the loan due to permanent disability, critical illness or death.
It’s important to make sure that you research the cost of borrowing when you are considering applying for personal loans.
Applying for personal loans means that your credit record will be assessed during the loan application process. It will be a factor considered by lending institutions and they won’t just rely on affordability.