Loan Agreement in California: How to Make Your Contract Enforceable and Airtight

The loan application process is daunting, to say the least, and with the risk of your application coming getting the Rejection stamp always a possibility, you need to make sure that you have all the basics out of the way, while also making sure that you do everything necessary to improve the chances of the loan getting approved. But the need to exercise caution doesn’t end there. Even after you have the nod of approval from the lender, you still need to make sure that the terms of the loan contract are agreeable.

A loan contract or a loan agreement is the legally binding agreement between the lender and the borrower. This document stipulates the terms of the loan, the method of payment, repayment schedule, and it also stipulates the collateral, interest rates for the loan, and the terms applicable should the lender default the payment. These details determine whether a dispute is resolved effortlessly in the future or not, and it’s also important for your records. Even where disputes don’t arise, the agreement is a good thing for the sake of your records. The loan contract is also important because it offers clear guidelines regarding what the parties to the agreement are getting themselves into, while also preventing the risk of an illegal practice, such as usury/ being charged more interest than the statutes allow. You might also like this agreement because it stipulates the precise amount/ value of the loan extended to the borrower, as well as the purpose of that loan and generally a formality for the loan.

While banks and other financial institutions have sample loan agreements, they are not the only lenders around. You could be a lender too, and since it’s important for you that everything is done by the book, a free California loan agreement form will help you get started on the right foot. This form is compliant with the statutes, and its terms ensure that you have everything you need for the protection of your finances. So, whether you are looking for financial protection for a loan you are giving to your best friend, relative, or colleague, this loan free loan agreement template ensures that you have everything set out right.

Note that if you choose to use a promissory note in place of the loan contract, perhaps because you are offering a short-term loan (7/ 14 days), the promissory note will do just fine. Unlike the loan agreement in California, which has to be signed by the lender and the borrower, the only signature necessary in a promissory note is the borrower’s – the borrower promises to pay back the loan amount by a specific, agreed date.

Important Section of a Loan Contract

• • Loan Amount and Interest Rate

    This section of the agreement specifies the value of the loan extended to the borrower. The section covering the loan amount will also specify the interest rate charged on loan.

    In the state of California, the usury rate appliable to loans (in loan agreements and promissory notes) is 10% for loans taken for family, person, or household uses. The state has, however, set the maximum rate of interest on forbearance or loans of any goods, money, accounts after demand, or things in action at 7%. The contract rate used shouldn’t, however, exceed 12%. With that in mind, a loan agreement charged an interest above 12% would be null and void, and the debtor would recover the treble amount paid if they are charged more than 12%. The interest rates applied to legal judgments, on the other hand, shall not exceed 10%, and the applied rate is often 7%.

  • Loan repayment section/ agreement

    This part of the loan contract has provisions for the loan, the date for repayments, repayment structure, as well as the responsibilities of the borrower and the risk level accepted by the borrower.

  • Financial Schedule/ Diagram

    This section also called the amortization schedule breakdown the payment process, the amount loaned, the interest charged, the amount remaining after each payment, and the total amount payable by the borrower at the end of the loan repayment period. This section also outlines the terms and penalties applied for late payment, dishonor fees, and debt cancellation fees, among others.

  • Collateral

    This represents the security taken by the lender for the loan offered.

  • Default

    This section outlines the terms and the steps that will be taken by the lender if the borrower defaults payment.

Tips for ensuring that the agreement is flawless and airtight

• • Double-check the details in the fine print. If you are not sure about the big words, find a legal professional or a finance expert to break down everything for you
  • Don’t be pressured to sign the contract
  • Keep your copy of the signed contract

To help you get started with personal or business loan contracts in San Diego, Los Angeles, Sacramento, San Francisco, Fresno, Oakland, San Jose, or any other city in California, get our free loan agreement forms today.