Planning on borrowing money? Any type of loan is a big commitment, no matter the amount. That said, both parties must be protected. That’s why a proper loan agreement must be in place.
Whether you’re borrowing from a bank or from legal money lenders, a loan agreement must accompany any loan amount. The creditor – bank or licensed money lender, will provide the loan agreement. But for loans between family and friends, you can create your own loan agreement.
What Is a Loan Agreement?
A loan agreement is a written contract between the lender and the borrower. It memorializes the loan transaction and can be used in court in case one party fails to fulfill the agreement.
It is a single document that contains all the terms of the loan and is signed by both parties. The following details must be included in the document:
- Identity of the parties (lender and borrower)
- Guarantor information (if any)
- Date of agreement
- Loan amount
- Interest charged
- Repayment terms
- Default provisions
- Signatures of each party
- Signatures of each witness
By signing the loan agreement, the borrower promises that the borrowed money, including interest, will be repaid to the lender at the agreed future date. On the other hand, the lender promises to lend the loan amount stated in the agreement.
Is a Loan Agreement Different From a Promissory Note?
A personal loan agreement is different from a promissory note which has the borrower’s one-sided personal commitment. A promissory note is also different from an IOU: an IOU is an informal document for loan agreements that has non-negotiable unspecified money repayment details.
The use of personal loan agreements is many: student loans, car loans, real estate loans, and other personal reasons or points of interest necessitating money and loans. Discover the best personal loan you can get in Singapore.
Sample Loan Agreement
Can you draft your own loan agreement?
Most people seek legal assistance from a law firm when drafting loan contracts. But you can write your own Loan Agreement using a free loan agreement template. It is still advisable to consult a lawyer who understands the national and local laws that would apply to provide legal advice.
If you are considering drafting your own loan contract, take a look at this free loan agreement template below.
In this example, the borrower and lender agreed to a monthly regular payment of an unsecured loan without a guarantor.
LOAN AGREEMENT (TEMPLATE)
This Loan Agreement (this “Agreement”), is made as of this _____ day of ____________, 20_____ (the “Effective Date”) by and among/between:
Borrower(s):________________________________,located at _______________________________
______________________________ [Address] (“Borrower”), and
Lender(s): ________________________________, located at _______________________________
______________________________ [Address] (“Lender”).
IN CONSIDERATION OF the Lender loaning certain monies (the “Loan”) to the Borrower, and the Borrower repaying the Loan to the Lender, both parties agree to keep, perform, and fulfill the promises and conditions set out in this Agreement.
Loan Amount
1. The Lender promises to loan the Borrower the principal sum of S$________________ (the “Loan”), together with interest on the outstanding principal amount of the Loan (the “Principal Balance), and in accordance with the terms set forth below.
Payment of Loan
2. The Loan together with accrued and unpaid interest and all other charges, costs, and expenses, is due and payable on or before ___________________, 20_____. All payments under this Agreement are applied first to accrued interest and then to the Principal Balance. The Loan shall be payable in installments equal to S$_________. The first payment is due on ___________________, 20_____ and due thereafter in ________[Number of payments] equal consecutive monthly installments. Each successive payment is due on the ________ day of the month.
Security
3. The Loan is NOT secured by collateral.
Guaranty
4. There is NO guarantor.
Interest
5. The Principal Balance shall bear interest at the rate of __________% per month. Notwithstanding, the total interest charged shall not exceed the maximum amount allowed by law and the Borrower shall not be obligated to pay any interest above such amount.
Late Fee
6. There is a late Fee. If Borrower fails to make a payment due under this Agreement within _____ days after the due date, Borrower agrees to pay to Lender a late payment fee of _____% of the amount then due.
Prepayment
7. The Borrower has the right to repay all or any part of the Loan, together with unpaid interest thereon, at any time without prepayment penalty or premium of any kind. The Borrower must provide _____ days prior written notice to the Lender of the prepayment and the amount of the prepayment.
Default
8. Notwithstanding anything to the contrary in this Agreement, if the Borrower defaults in the performance of any obligation under this Agreement, then the Lender may declare the principal amount owing under this Agreement at that time to be immediately due and payable.
Costs
9. The Borrower shall be liable for all costs, expenses, and expenditures incurred including, without limitation, the complete legal costs of the Lender incurred by enforcing this Agreement as a result of any default by the Borrower, and such costs will be added to the principal then outstanding and shall be due and payable by the Borrower to the Lender immediately upon demand of the Lender.
Governing Law
10. This Agreement shall be governed by and constructed following the laws of Singapore.
Entire Agreement
11. This Agreement constitutes the entire agreement between the parties and there are no further items or provisions, either oral or otherwise.
IN WITNESS WHEREOF, the parties have duly affixed their signatures on this _____ day of ____________, 20_____
SIGNATURES
| Borrower Signature | Borrower Full Name |
| Lender Signature | Lender Full Name |
Frequently Asked Questions
1. Is Loan Agreement Legally Binding?
The personal loan agreement document is a legally-binding loan document if it was notarized with a witness overseeing the signing process. Before moving to sign the personal loan document, the borrower and the lender should double-check the document details.
As a legally-binding agreement, personal loan agreements have the authority to put the stipulated terms and conditions into action. For example, if the borrower runs out of money for payment, the indicated collateral assets and properties (ex. real estate properties) will be legally seized. Any individuals whose sign is included in the personal loan agreement must adhere to it, or else they face legal consequences.
2. What Should I Look Out for in a Loan Agreement?
A personal loan agreement is a tedious document. Whether you have an interest in creating a template of your own or checking a pre-made agreement, here is the necessary information on loans or key provisions that must be included in a personal loan agreement document.
- Loan Amount
This involves a breakdown of the total amount of loans, including the interest rate, total loan principal, and loan financing charges (which include processing fees, administration charges, and prepayment penalty fees). A separate section for the covenant, or the promissory note of the borrower indicating the promise to pay the loan amount, is also included in a personal loan agreement.
- Loan Date
This includes the date on which the loan agreement was finalized and ratified by the parties involved. The date on which the loaned money was disbursed/will be disbursed is also indicated. This is used for determining the dates for payment installments.
- Borrower and Lender Information
Includes not only the borrower’s personal information but also the personal information of the lender as well. A loan agreement usually provides the full name, age, and permanent/current residence (or address of the physical office of the lender, if applicable) of the individuals in the agreement.
- Interest Rate
This stipulates the interest rate ratified in the loan agreement by everyone and indicates whether it comes in yearly or monthly intervals. If you are having difficulty in understanding interest rate, read our latest guide.
- Re-Payment Terms
The repayment terms include the borrower’s repayment options and repayment schedule (monthly/yearly installments, regular/lump sum payments), as well as any prepayment agreements. The loan payment schedule also defines a “late” payment.
- Late Fees (if any)
This refers to the added penalty fee for late payment of installments. In almost all personal loan agreements, this usually comes with an indicated interval (in days, weeks, months) and a corresponding late fee amount for each succeeding interval.
- Default Terms (if the borrower doesn’t pay)
This discusses the default process agreement and involves a demand from the lender that compels the borrower to pay the remaining loan balance immediately. Failure to do so results in collateral assets acquisition if specified in the personal loan agreement.
- Early Payment Penalty (if any)
Also known as the prepayment penalty fee, this is used when the borrower wants to pay all the remaining balance ahead of the end of the loan tenure. The reason for this fee is for the lender to recuperate losses on interest rates for the remaining period of the loan tenure.
- Security (collateral)
Its use comes in a personal loan agreement during default and indicates collateral assets and properties to be acquired from the borrower and co-guarantor/s.
- Co-Signer (if any)
This refers to other individuals who will take the responsibility for paying the loan if the primary borrower is not able to do so. These individuals are also included in the promissory note of the borrower. This adds protection to the lender by giving additional sources of payment.
- Assigning Rights
This is the transfer of acquisition rights, which happens if the loan is transferred to another co-signer or borrower, who will assume the repayment responsibilities, or the loan responsibility is transferred from one lender to another, changing the party receiving money payments.
3. Can I Change the Terms of My Loan Agreement?
Yes, if the lender and borrower consent to reconstruct the loan agreement, including interest rates. Other loan documents use different rules: a promissory note, for example, can be renegotiated.
4. Can You Cancel a Loan Agreement?
Before even signing the agreement, you must ask whether it is possible to cancel the loan agreement if you change your mind.
Some lenders may give you a few days to cancel once you have signed the loan agreement. If you’ve received the money already, then you must pay it back. Plus, the lender may charge you a cancellation fee.
In some instances, the loan agreement will have a section on termination in the Loan Agreement. This section should provide you with everything you need to know about canceling the agreement.
5. Does a Loan Agreement Need To Be Notarized?
Typically, it is not necessary to notarize a personal loan agreement. However, notarization can help verify the identity of the parties involved. It is highly advised to notarize the loan agreement, especially if it involves a large sum.
Lastly, notarization confirms that all parties understand the agreement and will help prove the validity of the agreement if it is challenged in court.
6. Is It Necessary To Have a Witness?
It is rarely required by law to have a witness sign a Loan Agreement. However, just like notarization, it is highly advisable to have at least one. Having the lender’s and borrower’s signatures witnessed will help prove the validity and legitimacy of the agreement. In case a dispute arises, the presence of a witness’s signature will be of help.
7. A Few Reminders When You Want To Borrow Money
Whether the one lending money are financial institutions, banks, family members, or licensed money lenders, it’s a good idea to have a written agreement. A simple loan agreement will clearly state the terms and conditions of the loan so you and the lender are both protected.
Most importantly, never borrow from any unlicensed money lending business. Aside from the absence of a loan agreement, they also charge sky-high interest rates and may resort to threats and harassment.
Closing
Personal loan agreements can be an intimidating document to review and agree with, but being equipped with the information included in this article, should not be a huge concern for borrowers anymore.
Key takeaways
- A loan agreement is a written contract between the lender and the borrower and contains all the terms of the loan, and is signed by both parties.
- Before signing any loan agreement, carefully review the details of the loan. Read the fine print and look out for clauses and fees.
- A personal loan agreement is different from a promissory note which has the borrower’s one-sided personal commitment.
- The personal loan agreement document is a legally-binding loan document if it was notarized with a witness overseeing the signing process.
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