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A loan agreement is the formal document through which a borrower agrees to borrow money from a lender and to repay that money in the manner specified. This type of agreements are involved in every types of loans such as mortgage loan, car loan, personal loan, invoice financing or start up business loans. These agreements are often quite complex, featuring a large number of clauses written in abstruse legal language. As a result, it can often be very difficult for the prospective borrower to read such an agreement and many will decline to do so, instead taking it for granted that the lender is acting in good faith and has not tucked away any unpleasant surprises in the small print. Most of the time, this does not lead to any unpleasant consequences. Sometimes, however, the borrower may eventually find some nasty surprise somewhere down the line deriving from some unread clause in the initial loan agreement. For this reason, it is highly advisable for any borrower to take the time to plough through the language of the agreement, making sure that everything is satisfactory.
Preliminary loan agreements are often made by telephone or over the internet. These will be followed up by the posting of a physical document to the prospective borrower. The borrower then fills out the agreement, signs it and returns it before the loan agreement becomes active.
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