Loan agreements can offer vital protection when lending or borrowing money or when you are providing a service without payment. Here’s what you need to know about these important documents and when you should have one.
What is a Loan Agreement?
A loan agreement can be created by official lenders or by specialist agencies such as Parachute Law https://www.parachutelaw.co.uk/loan-agreement and are complex legal documents offering protection to the parties involved. In most cases, lenders create the agreement and professional advice is required to ensure that it includes all essential elements and offers protection for the duration of the loan.
Why is a Loan Agreement needed?
A loan agreement can ensure that you are repaid or paid for a service or that you are able to take legal action if you need to recoup money. The agreement will detail the loan itself and how and when the borrower must pay it back. It is basically a legal promise between the borrower and the lender.
A loan agreement offers vital protection for all parties, detailing loan terms and proving that services, goods, or money are not gifts. They are important even if it is a loan between friends or family, offering clarity and preventing disagreements at a later date. You can find out about the different types of loans that should be covered by a loan agreement on the Citizens Advice website.
It is always better to be cautious and have a loan agreement. If you are thinking about whether or not you need one, the answer is almost certainly yes. The extra steps can prevent financial losses in the future and help to prevent time-consuming, and potentially upsetting, disputes. The latter may be particularly important when lending between friends and family.