Loan Agreement: Format and Example

A loan agreement is a legally binding contract between a lender and a borrower that outlines the terms and conditions of a loan. It establishes the rights and obligations of both parties regarding the borrowed funds. Loan agreements are typically drafted by the lender and may vary depending on the type of loan, the parties involved, and the applicable regulations. It’s essential for both parties to carefully review and understand the terms of the loan agreement before signing to ensure that they are in agreement with all the terms and conditions outlined therein.

Key Takeaways:

• The agreement specifies the amount of money being lent to the borrower.
• It outlines the interest rate that the borrower will pay on the loan. This can be a fixed rate, where the interest rate remains constant throughout the loan term, or a variable rate, where the interest rate may change based on market conditions.
• The agreement may include other provisions, such as prepayment terms, conditions for loan extensions or modifications, and any additional fees or charges associated with the loan.

This agreement (“Agreement”) is made and entered into on [Date] between [Lender’s Name], having address at [Lender’s Address] (hereinafter referred to as the “Lender”), and [Borrower’s Name], having address at [Borrower’s Address] (hereinafter referred to as the “Borrower”). Both of these parties are individually referred to as “parties”  and collectively as “parties.”.

Whereas the [borrower] signs this agreement and desires to borrow a fixed amount of money, and whereas the [lender] signs this agreement and agrees to lend a fixed amount of money to the borrower,

In consideration of this agreement, covenants, and conditions contained herein, the parties to the agreement agree to the following,

Loan Amount: The parties to the contract agree that the lender will loan the borrower [Amount of loan] the “loan”).

Interest Rate: The parties to the contract agree that the interest rate for this loan shall be [Rate] to be accrued annually.

Loan Term: The parties to the contract agree that this loan shall have a term for a period of [Tenure of loan] years or months.

Repayment: The parties to the contract agree that the borrower shall pay the lender [Installment] per month on the [date of payment] day of each month via [mode of payment].

Monthly installments shall be applied as follows,

Principle: [Amount]

Interest: [Amount]

Terms and Conditions:

1. Late Payments: Payment under this agreement shall be deemed to be late in case the amount is received by the lender [days] after its original due date. This agreement empowers the lender to charge a late fee of [Rate].

2. Default: The Lender may declare the whole outstanding principal amount and any accumulated interest immediately due and payable if the Borrower fails to make payments as specified by this agreement and does not remedy said failure within a reasonable period of time.

3. Prepayment: The agreement declares that if the borrower desires to make any early payment, the borrower shall not be penalized for such prepayment.

4. Representations and Warranties: Representing their complete authorization to participate in this agreement are both parties. Any third party’s rights must not be violated by either party’s performance or duties, nor shall they contravene any other agreement between the parties, each of them alone, or any other person, business, organization, law, or governmental regulation.

5. Severability: Any term of this agreement that is found to be illegal or unenforceable, in whole or in part, will be severed from the rest of the agreement, and the remaining sections will remain valid and enforceable and will be fully implemented.

6. Waiver: Any failure on the part of either party to exercise any right, power, or privilege under the provisions of this Agreement shall not be interpreted as a waiver of that right, power, or privilege, or of any other right, power, or privilege, in any subsequent or future exercise.

7. Lawyer Fees: If a disagreement leads to legal action, the winning party will be compensated for all legal costs, including but not limited to legal counsel.

8. Legal and Binding Agreement: This agreement is enforceable and binding on the parties. This agreement is enforceable in the state of [name of state] and may be entered into.

9. Governing Law and Jurisdiction: This Agreement shall be governed by and construed in accordance with the laws of India. Any disputes arising under or in connection with this agreement shall be subject to the exclusive jurisdiction of the courts in [state name].

In witness whereof, the parties hereto have executed this agreement as of the date first above written.

[Lender’s Signature] [Borrower’s Signature]

[Lender’s Name] [Borrower’s Name]

[Date] [Date]

1. Clear Identification of Parties: The agreement clearly identifies the lender(s) and borrower(s) involved in the loan transaction, including their legal names and contact information.

2. Loan Terms and Conditions: It outlines the terms and conditions of the loan, including the loan amount, interest rate, repayment schedule, loan duration, and any fees or charges associated with the loan.

3. Purpose of the Loan: The agreement may specify the purpose for which the loan funds will be used, such as purchasing a home, financing a business venture, or covering personal expenses.

4. Collateral and Security: If the loan is secured, the agreement identifies the collateral provided by the borrower to secure the loan, along with details of how the collateral will be valued and managed in case of default.

5. Repayment Terms: It details how the loan will be repaid, including the frequency and amount of payments, the method of payment, and any penalties for late payments or defaults.

6. Default Provisions: The agreement outlines the consequences of defaulting on the loan, including the lender’s rights to accelerate the loan, seize collateral, or pursue legal action to recover the outstanding debt.

This agreement (“Agreement”) is made and entered into on 20th April of 2024 between Suresh Mishra, having address at 98, Shipra heights, Mumbai, Maharashtra (hereinafter referred to as the “Lender”), and Rahul Sharma, having address at G-5, Maple avenue, Mumbai, Maharashtra (hereinafter referred to as the “Borrower”). Both of these parties are individually referred to as “parties”  and collectively as “parties.”.

Herein, Mr. Rahul Sharma signs this agreement and desires to borrow a fixed amount of money, and Mr. Suresh Mishra signs this agreement and agrees to lend a fixed amount of money to the borrower,

In consideration of this agreement, covenants, and conditions contained herein, the parties to the agreement agree to the following,

Loan Amount: The parties to the contract agree that the lender will loan the borrower ₹10,00,000/- (the “loan”).

Interest Rate: The parties to the contract agree that the interest rate for this loan shall be 18% to be accrued annually.

Loan Term: The parties to the contract agree that this loan shall have a term for a period of 60 months.

Repayment: The parties to the contract agree that the borrower shall pay the lender ₹25,393/- per month on the 20th day of each month via A/C payee cheque.

Monthly installments shall be applied as follows:

Principle: ₹16,666/-

Interest: ₹8,727/-

Terms and Conditions,

1. Late Payments: Payment under this agreement shall be deemed to be late in case the amount is received by the lender 15 days after its original due date. This agreement empowers the lender to charge a late fee of 10 %.

2. Default: The Lender may declare the whole outstanding principal amount and any accumulated interest immediately due and payable if the Borrower fails to make payments as specified by this agreement and does not remedy said failure within a reasonable period of time.

3. Prepayment: The agreement declares that if the borrower desires to make any early payment, the borrower shall not be penalized for such prepayment.

4. Representations and Warranties: Representing their complete authorization to participate in this agreement are both parties. Any third party’s rights must not be violated by either party’s performance or duties, nor shall they contravene any other agreement between the parties, each of them alone, or any other person, business, organization, law, or governmental regulation.

5. Severability: Any term of this agreement that is found to be illegal or unenforceable, in whole or in part, will be severed from the rest of the agreement, and the remaining sections will remain valid and enforceable and will be fully implemented.

6 Waiver: Any failure on the part of either party to exercise any right, power, or privilege under the provisions of this Agreement shall not be interpreted as a waiver of that right, power, or privilege, or of any other right, power, or privilege, in any subsequent or future exercise.

7. Lawyer Fees: If a disagreement leads to legal action, the winning party will be compensated for all legal costs, including but not limited to legal counsel.

8. Legal and binding agreement: This agreement is enforceable and binding on the parties. This agreement is enforceable in the state of Maharashtra and may be entered into.

9. Governing Law and Jurisdiction: This Agreement shall be governed by and construed in accordance with the laws of India. Any disputes arising under or in connection with this agreement shall be subject to the exclusive jurisdiction of the courts in Maharashtra.

In witness whereof, the parties hereto have executed this agreement as of the date first above written.

[Lender’s Signature] [Borrower’s Signature]

[Suresh Mishra] [Rahul Sharma]

[Date] [Date]

Why is a loan agreement important?

A loan agreement is important because it serves as a clear and formal record of the terms and conditions agreed upon between the lender and the borrower.

Is a loan agreement legally binding?

Yes, a loan agreement is legally binding once both parties (the lender and the borrower) have agreed to its terms and have signed the document. It is enforceable by law, and failure to comply with the terms outlined in the agreement can lead to legal consequences.

Is registering a loan agreement required?

In the event that the borrower defaults on the loan, the lender will not be able to collect the money since the agreement will not be legally enforceable without registration.

What happens if there is a dispute regarding the loan agreement?

If there is a dispute regarding the loan agreement, the parties involved can attempt to resolve the issue through negotiation or mediation. If a resolution cannot be reached, the dispute may be brought before a court of law for resolution according to the governing law as agreed in the agreement.

Do loan contracts require a stamp?

For borrowers, stamp duty on loan agreements is a crucial factor. Its purpose is to guarantee that loan arrangements are accurately documented and have legal enforceability. Legal repercussions from not paying stamp duty may include losing the ability to enforce the loan terms.