A loan agreement is a contract between two parties outlining terms of a loan issued by alender to a borrower. Sometimes called a loan contract, the loan agreement describes the obligations and responsibilities of the parties to the loan: the lender, the borrower and applicable third parties.
With some financing or loan programs, particularly in the real estate finance arena, the loan agreement is often called a promissory note or loan note. Loan agreements are used with a variety of loan products, from commercial and business financing to consumer loans such as personal loans, automobile loans and cash advance loans.
Loan agreements are typically created and provided by the lender, and each lender uses its own lending criteria, guidelines and requirements when developing its standard loan contract.
In general, however, loan agreements typically include the following basic loan features:
Loan agreements may also be required to follow specific state and federal regulations that regulate that lender and the specific loan being provided. This often involves the inclusion of required disclosures about the loan terms and costs.
Executing the loan agreement
To be a valid, the loan agreement must meet all the legal requirements of a valid contract. This includes the formal acceptance and execution of the agreement by both parties.
Depending on the loan program and lender, the loan agreement may be signed when the loan is closed and funds issued. Other loan programs, however, will have the borrower sign the loan agreement prior to final underwriting and funding.
Some loan programs and lenders may also require that a notary public sign and notarize the signed loan agreement, but not all. A notary public is an individual licensed to authenticate agreements between parties.
Loan agreements can contain a variety of loan terms and definitions and helps to establish the financial relationship between a borrower and a lender. Loan agreements may sometimes contain language and legal terms not commonly used by a consumer. Consequently, borrowers should review the entire loan agreement package, conduct their due diligence and speak with a financial advisor before signing a loan contract.
Disclaimer: NetCredit is a direct personal loan provider and does not provide financial advice, nor does it vouch for any vendor or service mentioned on our NetCredit personal finance blog or online consumer loan glossary. Always research and perform due diligence on any service provider or vendor before deciding to use them, and we recommend that you speak with a financial advisor regarding all decisions that will affect your finances.