A personal loan is a contract between two parties, the borrower and the lender. It outlines the terms and conditions of a loan and will include the amount of the loan, the interest rate, the repayment schedule, any fees associated with the loan plus any other relevant information.
The agreement also outlines the rights and responsibilities of both parties and will be legally binding. It is, therefore, important that the loan agreement should be read carefully before signing to ensure that the terms and conditions are fully understood.
In a recent customer report by analyst group Mintel, personal loan lending grew by 8% in 2022. Over the next five years, gross personal loan lending is forecast to reach £43.9 billion.
What will be in the contract for a personal loan?
A personal loan should include the names of the borrower and lender, the amount of the loan, the interest rate, the repayment schedule, and it should clearly state the terms and conditions.
Any associated fees should be included, together with the expected repayment date. Consequences of late payments should be clearly listed, in addition to the method of payment and the associated payment plan (for example, instalments or lump sums). Loans will also state how potential disputes will be handled and will include a clause that allows the lender to modify the terms of the loan in the event of a change in the borrower’s financial circumstances. Finally, the loan will require both the lender’s and borrower’s signatures, in addition to the date of signing.
How are personal loans written?
A personal agreement will be drawn up using a template by the financial company which the borrower or lender is using. The agreement is a legally binding record of the loan and aims to protect both the lender and the borrower. Depending on the complexity of the agreement, the borrower may wish to hire a solicitor to guide them through the process. The agreement should be written in plain language so that both parties understand the terms and conditions of the loan. It is vital that both parties fully understand their responsibilities before signing the agreement, as the contact is legally binding and enforceable. In some cases, the contract may be witnessed by a third party, but this depends on the nature of the loan and the parties.
How much does a personal agreement cost?
Prices vary, but the average price for a loan contract starts at £400, such as those seen here https://www.parachutelaw.co.uk/loan-agreement. Usually, a draft copy is sent for approval. If any additional clauses or information are required, then additional fees might be payable. Additional work required as a result of missing or incorrect information may add to the cost. If the loan needs to be registered, there may be an additional fee for this service.
Remember, a personal loan is a legally binding document, so it is vital that you fully understand your rights and responsibilities before signing a contract for a loan.