Important Clauses in Your Loan Agreement in Louisiana
Whether you are taking a home or a business loan, an understanding of the terms and the provisions of the loan is crucial, and among many other factors, it determines whether you can afford to take that loan or not and if you should take that loan, opt for a smaller loan amount, or look for a new lender. But for you to make these decisions, you need to know exactly what goes into the loan contract, the terms you should seek clarification on, elements you should consider bargaining, and things you can live with.
Today, we’ll help you understand all the important aspects of the loan agreement in Louisiana by breaking down all the important elements of the loan, including the things that you should or shouldn’t do.
What is a loan agreement?
Also called the loan contract, money lending agreement, a personal loan agreement, a business loan agreement, or a promissory note, the loan agreement refers to a legally binding agreement which maps out all the terms of the loan to ensure that each party to the agreement meets their end of the agreement, and to protect the lender in case the borrower defaults their payment. It might also come in handy for borrowers in case the lender changes the terms of the agreement against the provisions in the agreement. So, for the protection of your interests, you need to sign the agreement only after you’ve gone through the fine print or after having a legal or a financial consultant review the terms for you.
To familiarize yourself with this agreement and the things you should do or not, a free Louisiana loan agreement form will help you get started. This form is a sample loan agreement document that comes with all the important sections of the loan agreement, and it’s editable. Keep in mind that you might also need this agreement for record-keeping purposes, and also for easy tracking of your expenses.
Important Clauses/ Sections
This section of the agreement identifies and names the parties to the agreement – the borrower(s) and the lender. It also specifies the effective date, which is the date that the agreement takes effect, and also the period during which the loan will endure, from the effective date.
After evaluating your needs and determining that you need and you will be able to repay the loan, the total value of the loan (principal amount and the interest) is specified here. This is one of the most important sections of the agreement.
This is the most important aspect of your loan agreement because it determines how much the loan borrowed really costs. As a representation of the risk that the lender takes when they choose to approve your loan, the interest rate might vary depending on things like your credit history, credit score, and your debt to income ratio. But even with these considerations in mind, you need to be careful not to be exploited. The good news is that the state understands that lenders wouldn’t operate very fairly without rules and limits, hence Usury laws and interest rates caps. In the state of Louisiana, the Usury laws state that the maximum legal interest rate charged by lenders should not exceed 12%, and in the event of a lender charging interest above 12%, the penalty faced is the forfeiture of the entire interest charged.
The state has also capped the rate of interest on legal/ court judgments, and the limit to interest charged by state agencies is 6%.
The only exceptions to these laws apply to secure loans that are secured through a mortgage, obligations secured through a mortgage, or loan borrowing for business/ commercial purposes.
But even with the specified rate of interest, the terms and conditions of your loan agreement might also come with the Fluctuation Interest Rates Clause. This is an important clause, especially to the lender, because they will have the permission to alter the interest rate (within the statutory limits) depending on the prevailing economic status and their base-rate fluctuations. So, take this clause into consideration to know what to expect if things don’t go down the way you wanted.
In this section, you will have the repayment or the amortization schedule, which specifies how much the borrower pays each month or the agreed-upon installments set up. Often an installment payment features larger initial payments, especially when a compounding rate of interest is used, but there also are cases where the borrower would pay the full balance of the interest and the principal amount at the same time. The method of payment and the relevant bank account details will be specified here as well.
The other important sections to keep in mind include:
- Late charges applied
- Default terms and the steps to be taken by the lender in case the borrower defaults, also the time until the default measures kick in will be specified
- Collection fees if the lender has to seek the services of a collection agency after the payment is defaulted.
- Insolvency and the steps taken by the lender if the borrower files for insolvency or bankruptcy
- Collateral and the specifications of the security provided by the borrower in case of non-payment.
- Dispute resolution and how disputes between the parties will be handled
To create your loan agreement in Bossier City, New Orleans, Baton Rouge, Lafayette, Lake Charles, Shreveport, Slidell, or any other city in Louisiana, download our free loan agreement form here.