Personal Loan Agreement: What You Need to Know Before Signing

man hands signing personal loan agreement

A personal loan is an unsecured loan that has fixed interest rates and repayment periods. Issued by banks and other lending entities, it does not have a specific use; its use depends on the borrower’s personal decision.

The maximum loan amount of a personal loan agreement depends on the current income of the borrower and existing credit history: the larger the current income and the better the credit history, the larger the maximum loan amount given to the borrower.

Related: Personal Loan Interest Rates

What is a Personal Loan Agreement?

A personal loan agreement is a loan agreement document that has flexible interest rates, loan tenure, and loan repayment terms, decided by the borrower and the lender.

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 are many: student loans, car loan, real estate loan, and other personal reasons or point of interest necessitating money and loans.

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 sign 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.

What Should I Look Out for in a Loan Agreement?

A personal loan agreement is a tedious document. Whether you have interest in creating a template of your own or checking a pre-made agreement, here are the necessary information on loans or key provisions that must be included in a personal loan agreement document.

1. Loan Amount

This involves a breakdown of the total amount of loans, including the interest rate, total loan principal, and loan financing charges (which includes processing fees, administration charges, 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.

2. 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.

3. 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.

4. Interest Rate

This stipulates the interest rate ratified in the loan agreement by everyone, and indicates whether it comes in yearly or monthly intervals.

5. Re-Payment Terms

The repayment terms include 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.

6. 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.

7. 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.

8. Early Payment Penalty (if any)

Also known as 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 in the loan tenure.

9. 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.

10. 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.

11. Assigning Rights

This is the transferring 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.

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.

How Does a Loan Agreement Look Like – Loan Agreement Template

This is the usual order in a personal loan agreement template/sample loan agreement that you can download online:

1.Personal information of involved individuals/parties

2.Date of the personal loan agreement

3.Indication of the disbursed amount of money (plus promissory note)

4.Breakdown of loan (the amount of money loaned, interest rate, loan principal, etc)

5.Loan repayment details (when and how you should give money as payment)

6.Late payment/Loan default/Collateral details

7.Notarization details/signatures

How to Apply

A personal loan agreement requires a mutual agreement from borrower and lender regarding personal loan terms. To apply for a personal loan agreement, start by furnishing out the terms and conditions with your lender of choice.

As a borrower, you need to provide details such as personal information, credit history made from your previous loans, and other pertinent information. Furnish and negotiate the loan breakdown and the borrower repayment details.

If an agreement is made, you also need to provide a guarantor/co-borrower to sign the document to be notarized later on.

For the eligibility criteria, here are the usual requirements you should take note of. It is also important to note that Singapore residents have a different criteria and required documents compared with foreigners.

Lenders will also have their own different criteria and requirements, so it is important to transact with them to check their lists.

For Singapore Residents and PRs

Eligibility Criteria for Personal Loan Agreement:

  • Age between 21-65 years old
  • Annual income around $30,000
  • Employed

Documents for Personal Loan Agreement:

  • NRIC
  • Recent payslips (usually the recent 3 months)
  • CPF Contribution statements
  • Income Tax statements
  • Proof of address/residence

For Foreigners

Eligibility Criteria for Personal Loan Agreement:

  • Age between 21-65 years old
  • Annual income around $40,000
  • Employed

Documents for Personal Loan Agreement:

  • Passport
  • Recent payslips (recent 3 months)
  • Work pass (S-Pass/Employment Pass)
  • Employment Contract/Appointment Letter
  • Bank statement

Closing

Personal loan agreements can be an intimidating document to review and agree with, but being equipped with the information included with this article, it should not be a huge concern for borrowers anymore.

The most important aspect discussed here is that you have to check every single detail, especially the details of how much money you are going to borrow, when you will pay back that money, and how you will be paying back.

Borrowers sometimes fail to check all the details in the fine print when they sign the document, then become surprised after a while because of unexpected clauses and fees. Therefore, due diligence is needed, especially in the nature of side fees, such as processing fees and administration fees, which are often included in agreements but not emphasized or made prominent enough.

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With regularly-updated information on available loans, you can confidently make a decision and quickly enter an agreement at the nearest licensed moneylending office of your choice, equipped with the necessary information ahead of time.

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