How to Create a Loan Agreement in Iowa

A loan agreement is a written legal instrument that binds a lender and a borrower. In this agreement, the borrower promises to pay back the loan that the lender extends to them while promising to pay back the loan amount (inclusive of the interest rate charged) according to the repayment schedule agreed upon by these two parties. This contract is important for the lender and the borrower because the lender will have a written contract telling them that the borrower will pay off the borrowed money in the time agreed and if they default, the lender can legally foreclose the borrower’s home or take ownership of any other asset named as security. This document is also important for borrowers because they will have a written record of the agreement for tracking of payments and also for record-keeping. With both the lender and the borrower obligated to repay the loan within an agreed period, the inclusion of important clauses, and the overall comprehensiveness of the agreement, the loan agreement in Iowa could be used to process and record loan transaction for personal, student, business, and real estate loans.

While banks and big lending institutions already have all the documentation and loan agreement samples needed by their clients, most private and individual lenders might not have all the necessary documents or forms, and that is where the free Iowa loan agreement form comes in. This loan agreement form allows businesses and individuals in the credit/ lending business to lay out the terms for the loans they are providing. Some of the important sections in this agreement include the loan’s amortization table/ schedule, which detail the loan amount, principal, interest charged, as well as the monthly payment plan for the loan. As a borrower, you need to understand that the loan agreement is quite flexible and customizable, and you can ask for tweaks in most, if not all, of the elements of the agreement.

Creating a Loan Agreement

As a private individual extending a loan to a borrower (family, friend, or acquaintance) you need to know that the agreement is one of the most powerful documents you will come up with, but in as much as you need it to give you maximum protection, it also needs to have terms that are favorable to the borrower.

That said, here are some of the critical components that must be present in the loan agreement

• • Effective date and Terms of the Loan

    This section specifies the date that the loan contract is signed by both parties; it’s also the date that the lender disburses their money to the borrower. This section might also specify the term of the loan and how long the borrower has until they’ve repaid the loan in full.

  • Parties

    The lender and the borrower will be defined and named. The relationship between the two is also specified here.

  • Loan Amount and Interest Rate

    The loan amount signifies the amount of money that the lender will extend to the borrower and the interest rate charged. The interest is of great significance because you need to make sure that the rate charged is acceptable as per the statutes.

    The state of Iowa has put in place measures to ensure that borrowers are not exploited, just like all the other states, and this means that lenders found to be engaging in usurious practices would be punished. The maximum interest rate permitted by the statutes in Iowa is 5% unless the lender and the borrower agree on another rate. But even then, the agreed rate cannot exceed the official maximum rate that’s set by the state’s Superintendent of Banking. In the case of usury, the plaintiff gets to pay the principal rate only, and the interest and other costs are covered by the lender. The lender in violation would also have to part with 8% of the unpaid principal.

    Legal judgments, in the absence of written agreement, attract an interest of 10%, unless the contract states a different percentage. But even then, the permitted maximum cannot be exceeded.

    There is an exception to the Usury laws, though, and the maximum state limit isn’t applicable to business/ agricultural loans, loans for real estate/ property, or loans above $25,000.

    Note that the interest rate in the contract is the annual percentage rate, and the rate could be floating/ variable or fixed. Variable interest rates are based on a prime interest rate and other points.

  • Collateral and Default

    The agreement will also specify what would happen to the borrower in case they default their payment, and it also specifies the item listed as security for the loan, along with the specific steps that the lender will take to get back the money owed. The contract should also include acceleration and a default clause, while also specifying the penalties for non-payment.

  • Repayment Schedule

    Also called the amortization schedule, this table breaks down the elements of the loan and shows the borrower how much they will have to pay each month.

To create a loan agreement in Iowa city, Davenport, Cedar Rapids, Des Moines, Waterloo, Ames, or any other city in Iowa, download the loan agreement form from us today.