The process of applying for a loan can be daunting; especially if it’s your first time to do so. Usually, most people ask for loans following an emergency, and this means that they are already stressed even before they initiate the process. If you are currently in this situation, don’t worry.
We have outlined some crucial details to observe during the loan signing process. Keep reading to find out more.
What Is A Loan Contract?
This is a legally binding agreement between the borrower and the lender in regards to the loan application process. The primary purpose of the contract is to give clear guidelines of what each of the parties is getting themselves into. They also help in preventing any illegal practices such as excessive repayment of interest rates. All loan contracts must stipulate a precise amount of the loan, as well as its purpose. The loan contract should be in compliance with your specific state regulations.
What Is the Importance of a Loan Contract?
Taking a credit is a huge commitment. The loan contract, therefore, helps in formalizing the entire process. As earlier mentioned, it outlines the loan amount, interest rates, repayment plan, penalties, collateral, and other terms. This ensures that nothing is added or subtracted from the loan agreement.
The loan contract proves that the borrowed amount is issued as a loan and not as a gift. The borrower must, therefore, repay according to the terms and conditions.
The contract also protects both the lender and the borrower when the matter is forwarded to the court for whatever reason.
What Should I Look Out For in a Loan and Credit Contract?
Firstly, go through every word written in the loan contract. You will avoid the nasty surprises that arise when you finally realize that you skipped something crucial. So, as tedious as it may look, go through all pages. If you can’t do it alone, find a relative or a staff from the financial institution to help you understand everything. This will protect you from the extreme vulnerabilities through the loan repayment period.
Loan Contract Important Sections
We want to ensure that you sign for your next loan contract more confident and comfortable. Discussed below are the most important sections that you must look out for in your loan contract.
- Financial Diagram – The diagram may provide a breakdown of all the expenses and fees associated with the loan you are taking. It also outlines the establishments of the monthly fees as well as the details of the exact amounts that you will be paying every month. You will also find the dishonor fee which is usually charged for the late or missed payments. The debit cancellation is charged by the lender when you stop making the payments without notifying the lender.
- Expenditure and Income Declaration – Your lender will ask for your income and expenditure information to approve the loan. The lender uses this information to assess your stability when it comes to repaying the loan. Make sure that you are honest while providing this information. Also, confirm if your lender has noted the information correctly as you issued them.
- Loan Repayment Agreement – It’s vital for you to understand the provisions for your loan. The information will help you know the responsibilities you have, as well as the levels of risk you will assume when you accept the loan.
Double Check Your Information
Go through your loan agreement more than once to confirm the information once again. The repetition will help you pinpoint any spelling mistakes or incorrect information in the agreement. This is especially important in relations to your bank account details.
Don’t Feel Pressured
Never be pressured when signing your loan contract. The contract will be sent to you once the loan has been approved. It is therefore up to you to determine when you will send the contract back. You should, however, keep in mind that the longer you keep it, the longer it will take for you to get the amount. Your loan offer might also expire if you hold the contract for an extended period.
Always Keep a Copy of the Contract
For your record, always maintain a signed copy of the loan contract. The last thing you want in your loan application process is to have a technical glitch that unravels your entire agreement. So, check everything twice to be on the safe side.
Communication is Key
Inform the lender if there is anything that you don’t understand well in the loan contract. Also during the payment period, get in touch with your lender even when you unable to make repayments. The notification will help them to come up with a new alternative method of repayment.
The main things that you must look out for in your loan contract are the fees, the interest rate, amount of credit, a method of repayment as well as the settlement date. If you have any question regarding the same, don’t hesitate to inform your lender.