Loan Agreement in Illinois – Important Definitions And Provisions
A loan agreement is a comprehensive and often complex document designed to protect lenders and borrowers when money/ credit changes hands. Often, the lender is the party that creates the loan agreement, but that doesn’t mean that borrowers shouldn’t know about it, or how they can protect themselves. In this article, we look at everything you need to know about loan agreements and what you could do to protect yourself from unfavourable rates. For starters, the loan agreement in Illinois is also called a loan contract, promissory note, or a business loan agreement. Regardless of the name used, this agreement protects lenders from non-payments because it enforces the promise made by the lender to repay the loan as per the terms agreed. The agreement is also important for the borrowers because it details the terms of the agreement for record-keeping purposes and easy tracking of payments made and the ones due.
If you are a lender who is considering approving a loan application made by a small business owner or friend, the free Illinois loan agreement is a draft document that outlines all the important sections of the loan contract. The loan agreement form is easily downloadable, and it’s also editable and printable. It’s also state-specific, and you won’t have to worry about the contract being non-enforceable.
That said, these are some of the most important components and definitions of loan agreements in Illinois.
The interest rate charged on the loan you are applying for is one of the most important components of the loan agreement, and knowing the limits for interest rate along with the going interest rate on the market would save you a lot of money at the end of the day. So, before you take out a loan, especially a bank loan, you need to make sure that you have an accurate calculation of the interest rate, and you also need to know how the bank (and other credit facilities) calculate interest. The quoted interest rate by the bank is the effective rate of interest or the annual percentage rate (APR). The APR is, however, different from the rate of interest stated because it’s affected by the compounding interest effects. Your bank might also tie that interest rate to a specific benchmark/ prime interest rate, hence a fluctuation in the interest rate because of the variations in the said benchmark.
In addition to the types of loans, you also need to know what the state limit for interest rates is. The Prairie State understands that lenders would extort its residents in the absence of caps on interest rates, which is why the state has Usury laws, as well as limits on the rate. Generally, the maximum legal rate of interest would be determined by the state laws that apply at the time of the creation of the contract and lenders found in contravention of these laws would be required to pay twice the total cost of the excess interest charged, as well as the court and attorney fees.
The interest charged on legal judgments is either 9% or 6%. The latter applies to debtors in local government, community college, school district. Generally, however, the usury limit stands at 9%.
Loan Repayment Terms
This section of the loan contract specifies how the borrower will pay back the loaned money. These terms are often specified in a loan repayment schedule or an amortization schedule. The amortization schedule represents the complete schedule for the periodic loan payments. This schedule shows the principal amount and the interest charged on each payment until the end of the payment term (agreed and specified in the agreement). Often, the majority of the individual payments specified is the amount that is owed in interest, but at some point, most of the payment will only cover the principal amount. The last payment listed on the schedule shows the total interest plus principal payment for the whole loan’s term.
Lenders ask for collateral on loans to cushion themselves in case of non-payment or if the borrower defaults some of the payments. Collateral is simply the security that the lender takes for the loan they are extending to you – it is the valuable item that’s acceptable as security for the loan. Collateral could be a building, stocks, or a home. As a lender, you need to know what you are putting on the line when you choose to name an asset of value to you as collateral for a loan.
Loan Repayment method
This represents the negotiable instrument that the borrower will use when paying the loan. The repayment method might be cash, check, or any other method agreed upon.
This provision addresses what happens to you in case you are unable to repay the loan on time. Should a borrower file for bankruptcy? Will a Federal Tax Lien be filed against the borrower’s assets? What is the cure of default offered to the borrower by the lender? Often, the cure of default involves a directive by the lender to have the borrower pay the full value of the principal and the accrued interest after a specific time, release the named collateral to the lender, and/or pay the late payment penalty. With these details in mind, you should negotiate the terms of the loan contract and repayment, as well as the cures for default, to ensure that your financial interests are protected.
If you are in Chicago, Rockford, Peoria, Champaign, Elgin, Naperville, Joliet, or any other city in Illinois, you might want to download our free loan agreement here form today.