When a loan is taken out, a legally binding agreement is made between the borrower and the lender that explains the terms and obligations to which each must abide. It is made to protect both parties but is usually created by the lender.
What is included?
A full loan agreement will include not only the amount of money that is being loaned but also the term of the loan, how it will be repaid, and the amount of any interest. What should also be made clear is what happens if you miss a payment or are late in paying and details of whether the loan is being guaranteed to ensure the lender gets their money.
Citizens Advice recommends checking that your loan agreement is covered by the Consumer Credit Act 1974. This information should be at the top of the loan document.
If you are at all unsure about a loan provider or any of the Loan Agreement Info you have been provided with, you should take legal advice before you enter into the contract.
Loan agreements can also be created if you lend or borrow money from friends and family. While you may trust them to pay back the money, having a legal document ensures they can’t claim it was a gift further down the line.
What happens if you default?
Once an agreement has been signed, the borrower has 14 days to cancel if they change their mind. If a loan agreement is broken after this, the lender has various options to try to recoup their money; for example, this could include a deal to repay the debt over a longer term or a guarantor could be asked to cover it. Failing this, a lender may resort to the courts.
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