![]() Keep the lender's agreement to the payment terms for their records Legally enforces a borrower's promise to pay back the money owedĪllows recourse if the borrower defaults on the loan or fails to make a paymentīorrowers benefit from loan agreements because these documents provide them with a clear record of the loan details, like the interest rate, allowing them to: Aside from that, a loan agreement helps a lender because it: Namely, this legally binding agreement protects both of their interests if one party fails to honor the agreement. Loan agreements are beneficial for borrowers and lenders for many reasons. Regardless of the type of loan agreement, these documents are governed by federal and state guidelines to ensure that the agreed-upon interest rates are both reasonable and legal. ![]() Depending on the purpose of the loan and the amount of money being borrowed, loan agreements can range from relatively simple letters that provide basic details about how long a borrower has to repay the loan and what interest will be charged, to more elaborate documents, such as mortgage agreements. ![]() A loan agreement, sometimes used interchangeably with terms like note payable, term loan, IOU, or promissory note, is a binding contract between a borrower and a lender that formalizes the loan process and details the terms and schedule associated with repayment.
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