How to Create a Loan Agreement
Discover the necessary considerations you need to undertake when entering into a loan agreement and how you can effectively enter into a loan agreement to ensure your financial prosperity.
As with any monetary transaction, extra caution must be taken when taking or making a loan. It is a smart idea to enter into a written Loan Agreement when the loan sum is a large amount, regardless if you are familiar with the other party. It is critical that you ensure the terms of your loan, whether you are a lender or borrower, are accurate.
What are some main considerations when creating a Loan Agreement?
1. Loan Amount
2. Repayment Plan
There are several important factors to consider in the repayment plan of the loan. These include the annual percentage rate, the method of calculation of the repayments, frequency and/or time of repayments, and any additional fees and charges related to the agreement. Setting these details out clearly minimises the risk of dispute for either party, and also ensures clarity for both parties in entering into the agreement.
3. Late Fees
There must be a clear stipulation of what constitutes a default of the loan, triggering any late fees and/or penalties. Additionally, as you probably guessed, these late fees and/or penalties must also be detailed clearly.
Security is a term the voluntary grant of rights over the borrower’s property that guarantees payment of the debt to the lender. The types of security (if any) in the Loan Agreement have to be clear and detailed
5. Legal compliance
If you are lending money, you must be licensed with ASIC unless an exemption applies, or you are a representative of someone who is licensed. If you are borrowing money, you need to ensure that the party you are borrowing from is licensed.
A template information sheet is legally required to be attached to your Loan Agreement, informing the borrower (which could be you) of their rights and responsibilities. If you are given a Loan Agreement without an information sheet, be sure to request one. Alternatively, where suitable, you can consider using LawPath’s Loan Agreement.
Learn more from ASIC and the National Consumer Credit Protection Regulations 2010.
Unsure where to start? Contact a LawPath consultant on 1800LAWPATH to learn more about customising legal documents, obtaining a fixed-fee quote from one our network of 600+ expert lawyers or any other legal needs.
Dominic is the CEO of Lawpath, dedicating his days to making legal easier, faster and more accessible to businesses. Dominic is a recognised thought-leader in Australian legal disruption, and was recognised as a winner of the 2015 Australian Legal Innovation Index.