Relying only on a verbal promise is often a recipe for a person who gets the short end of the stick. If the repayment terms are complicated, a written agreement allows both parties to clearly define all the terms of payment and the exact amount of interest due. If a party does not respect its side of the agreement, the written agreement has the added benefit that both parties understand the consequences. A loan agreement is written proof of a loan between individual persons or entities, such as Z.B, partnerships and capital companies. It includes the amount of the debt and the terms of the loan. In this loan agreement, the person or entity that lends the money is designated as a creditor, while the person or entity that lends the money is designated as a debtor. For those who do not have a good credit history or if you do not entrust their money to them, because they have a higher risk of default, a co-signer will be included in the credit contract. A co-signer agrees to pay the credit in case of late payment of the borrower. In the event of a subsequent disagreement, a simple agreement will serve as evidence to a neutral third party, such as a judge, who can help enforce the treaty. A lender can use a loan contract in court to obtain repayment if the borrower does not comply with the contract. For more information, check out our article on the differences between the three most common credit forms and choose what`s right for you.
For private loans, it may be even more important to use a loan contract. For the IRS, money exchanged between family members may look like either gifts or credits for tax purposes. The loan agreement should clearly state how the money is repaid and what happens when the borrower is unable to repay. The user can choose to make the payment of the loan in a lump sum (the total amount and interest payable on a date) or in installments. If the user chooses staggered payments, the user can choose to pay the same amount until the full amount is paid, or an amount equal to a lump sum at the end (for example.B. 80% are paid in equal increments and the remaining 20% are paid lump sum). Like any legally binding contract, a loan agreement has certain terminology scattered throughout the contract. These terms have their own purpose in the loan agreement, and it is therefore important to understand the meaning behind these terms while they are designing or using a loan agreement. While loans can be made between family members – a family credit contract – this form can also be used between two organizations or companies that have a business relationship.