What are the two types of loan agreement that one can enter in today?

What are the two types of loan agreement that one can enter in today?

March 16, 2022 Off By Laxman

Loan agreement is a type of contract which documents a financial agreement signed between two parties – the borrower and the lender. This kind of agreement is also referred to as a Loan Contract, Demand Loan or Term Loan.

This kind of agreement specifies the dates of payment, repayment plan, loan amount and interest charges (if any). With the help of a written contract like this, both the lender and the borrower can get a clear outline of the loan terms. Know about the two main types of loan agreement in Indiana as well as in other states and countries.

Knowing about two types of loan agreement worth entering 

The below are the two types of loan agreement worth knowing before entering to a loan agreement –

Unsecured loan agreement

This kind of loan is issued without any collateral. An unsecured loan is commoner while giving money on loan to family members or friends. There might be higher rates of interest for an unsecured loan, in order to offset the risks to a lender for giving money on loan without any collateral.

It is possible to get simple loan agreement template online, which can be downloaded and customised for individual use or specific circumstances. When this is done, it can be easier to create a water-tight loan agreement that is full proof in terms of the language and sections that are used.

Secured loan agreement

This type of loan is issued as well as supported with collateral, which is supposed to be used in case the borrower is unable to make payments any longer.

For the uninitiated, collateral is generally a physical asset which can be sold off and / or seized by the lender to pay the rest of the loan balance, in case the borrower cannot pay back that sum of money. The collateral can be bonds, stocks, a house or a car.

A loan agreement is an important financial document. Why is it important to have a loan agreement in place? It actually serves as a reference and also as a proof that a specific sum of money has been obtained by the borrower along with a promise of repayment with interest amount. All the important details, such as sum of money given as loan, repayment period, plan of repayment, dates of repayment, interest charges etc are mentioned clearly in this contract. A loan agreement can be of two types – secured and unsecured. There are several reasons and instances when this type of a contract can be used.

In case there is an absence of a collateral clause in the agreement, the lender would need to approach the court, in order to seize any of the assets of the borrower. Even when there is a collateral clause there in the contract, the lender might still have to approach the court for seizing the collateral, although the process is much smoother in this case.