Updated on: Oct 12th, 2021
6 min read
A loan agreement is a contract between the borrower and the lender stipulating the terms and conditions for the grant of loan to the borrower. A loan can be taken from a lending institution, friends, family member etc.
A loan agreement is essential irrespective of the fact to whom it is given. Even if the loan is given to a friend or a family member, it’s always better to have a loan agreement. It serves as a legal document for settling disputes that may arise between the borrower and the lender later.
The loan agreement provides details of how much loan is lent to the borrower and when the borrower needs to pay it back. The execution of the loan agreement acts as a promise to pay the loan amount from the lender to the borrower. Borrowing or lending money is a big commitment, thus it is important to protect both parties by executing a loan agreement.
A loan agreement serves as proof that the money was given as a loan and not as a gift to the borrower. It prevents the borrower from trying to get out of repayment of the loan amount. It is necessary to execute a loan agreement even if the money is borrowed from a friend or family member. It is better to have a loan agreement to make sure that there are no disagreements or issues over the terms later on which could even ruin a relationship.
A loan agreement contains the following information:
A loan agreement must be signed by both the parties (borrower and lender) in order to avoid any dispute that may occur later.
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