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Loan agreement
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Loan is a way in which money can be raised to finance the personal needs of an individual. When you take a loan you are typically required to sign a loan agreement. The loan agreement covers the points that are mentioned in the promissory note. But the loan agreement is lengthier as compared to the promissory note and contains more details about the transaction.
You might get your loan from any bank, financial organization or any private lender but there are a number of factors that should be looked into before signing on the loan. You should read the loan agreement carefully. The loan agreement contains the following points
The due date: the loan agreement would contain the due date when the principal on the loan is supposed to be paid back. This date is usually the end period of the term of loan. When reading the loan agreement you should make sure that the time is enough so that you can meet the payments on time. Make sure the repayment period is enough for you to make the payments.
The interest rates: the lender decides on an interest rate that is required to be paid on the loan. Usually loans that are for a smaller time have a lower interest rate when the loan is for a longer term means that you would have to pay a higher interest over the life period of the loan. These factors would include your credit score, the amount of loan that the borrower has applied for, the down payment made by the borrower and the policy of the loan company. Loan lenders usually offer low interest rates to borrowers who have a good credit score because they are considered as prime borrowers. There are times that the borrower who has a good credit score would even qualify for a zero down payment loan or a stated income loan or a no documentation loan. Having a good credit history can make the loan process easier and the borrower can get the loan on time.
The fees on the loan: the lenders usually charge fees like processing fees, application fees, mortgage insurance fees, legal fees etc. when going through the loan agreement you should make sure that you check out the additional fees charged by the lender. At times the lenders would not reveal but there are a number of hidden costs.
The prepayment: when taking the loan check the loan agreement for any mention of the prepayment penalties. This is charged in case you pay off the loan earlier than the due date of the loan.
Terms of Default: the lender usually mentions the terms of default in the loan agreement. These terms refer to the condition in case you fail to make the payments on time. It is important to go through this especially in case you have taken the loan against any collateral.
Grace Period: if you dont see any mention of the grace period on the loan agreement then you should negotiate with the lender to add some grace period for every payment. In case the loan mentions any late payment fees then you should make sure that the fees is affordable.
Collateral: there are times when the loan is given out only after pledging a collateral for the loan. According to the security agreement in case
you default on the loan the lender has the right to foreclose the property and recover his amount. When you take a secured loan then you should make sure that payment options are flexible and that the amount you are taken you would be able to easily pay it off.
Co-signers: there are times that the lender may ask for a co-signer or a guarantor. This is a way in which the lender assures that the loan will be paid back. The co-signer however takes the risk that his assets would be liable for the repayment of the loan.
Before you sign any loan agreement you should compare the offers from various lenders. When you take the effort of comparing the loans you would be taking charge of securing you loan. Usually when lenders offer loans they would offer a higher interest rate so that you would be unable to pay back the loan but by comparing and negotiating for the loan you can get a good and affordable deal. When you take a loan against a collateral and if you fail to make payments towards the loan then keep in mind that the lender has the full right to take possession of your property. Besides with unsecured loans you would have to pay a higher interest rate. You should rule out your options and then go in for the loan that would give you the best deal.
While taking a loan you should borrow only that amount which you can afford to pay back. It is important to realize your financial condition and then apply for the loan. Also make sure that the loan you pay has a fixed interest rate so that you know how much you have to pay every month. It is important to analyze these conditions so that you know how much you have to pay every month towards the loans so that you dont fall into any adverse situation.
In this huge loan market there are many types of lenders that offer some of the great deals to borrowers and would provide them with the much-needed finance. But before you sign up for any loan option you should make sure that you have verified the reputation of the company and have understood all the terms and conditions of the loan. Other Articles |
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