Loan Agreement in Massachusetts: Things You Should Know Before You Sign A Loan Agreement
A loan agreement refers to the legally binding agreement that specifies the terms of a loan while also recording the agreement between the lender and the borrower. By signing under the dotted lines, the borrower pledges to repay the loan in full as per the agreed terms, failure to which they’d have to forfeit the asset named as collateral or pay late fees or collection fees. The lender also signs the agreement as a way of agreeing to extend the loan to the borrower as per the terms laid out, negotiated, and agreed to by the borrower. This agreement also provides protection on both sides with the lender knowing that they will have restitution in case the borrower fails to pay the money owed, while the borrower will always know how much they are expected to repay, and they won’t have to worry about the loan’s terms changing overnight, especially if the change is not provided for in the agreement.
Formulating and reviewing the terms of your loan agreement in Massachusetts is an important consideration, and whether you are dealing with this contractual document for the first time now or have used it before, you need to make sure that the contract is comprehensive and checks all the important boxes. To help you get started on the right foot, we recommend downloading this free Massachusetts loan agreement form today. In it, you will have access to an overview of all the important sections that you need to review to ensure the document you create is favorable for you. As a lender, especially if you are planning to lend money to a friend or family, you can tweak the different section of the agreement, have the borrower go through it, discuss the fine details and negotiate the terms, then sign it once you are both satisfied with the terms.
Some of the important sections that you need to review in this agreement include:
- The loan amount and interest rates charged
- Repayment/ amortization schedule
- Method of repayment
- Steps to be taken in case of a late payment or non-payment
- Collateral given by the borrower
- Terms of default
Massachusetts Interest Rates
The interest rates charged on loans is one of the most important considerations that you need to keep in mind when creating the loan contract. It’s also a negotiable instrument (something most borrowers are not aware of), but regardless of the nature of the loan and in other cases the credit score of the borrower, there is a maximum limit on the interest rates that you cannot exceed. The statutes recommend the maximum legal rate of interest charged by lenders to not exceed 6%, although the rate might be variable. The state usury laws also differ from what you get from other states, and the lenders who are found charging usurious rates above 20% might be forced to void the usurious loan altogether. There is a law on torts too, and the limit for the rates of interest on judgments is 12%.
The limits on rates do not, however, apply to small loans, life insurance policy loans, or open-end credit transactions.
Important Considerations to Keep in Mind When Signing a Loan Agreement
Interest Rates RepaymentIn most cases, the first loan payments made go towards the payment of the interest charged, unless the terms of your agreement vary. With that in mind, you need to know how much you will be paying in interest each month, the number of months you’d be paying the interest, and, most importantly, negotiate for lower interests before you sign the agreement.
You cannot back out of the agreementThis might be a hard pill for you to swallow, but you need to know that you cannot back out of the signed loan agreement in Massachusetts, at least, not without significant consequences. You need to remember that the loan agreement is, just like any other contract, a legally binding and a legally enforceable agreement, and just because you realized a little too late that you would have found a better deal elsewhere is not reason enough for you to back out of the contract. You’d have to come to a different agreement or pay the penalty, that’s if you are lucky and aren’t punished by the courts.
Co-signingThe other thing you need to keep in mind when signing a loan contract is that if you choose to sign the loan contract with another person, you’d be stuck with them for as long as the contract is in effect, even after a divorce unless you come to a different agreement where one party shoulders the weight of the debt, and if they stick to it.
Also, the person you co-sign with might decide to stick you with the bill, and if they don’t pay their part of the debt, you’d have to pay for everything, unless your agreement clearly stipulates how the bill will be paid in case of such issues.
There you have it – some of the most important considerations to keep in mind before signing the loan agreement.
Whether you are planning to create a loan agreement in Salem, Boston, Cambridge, Springfield, Lowell, Plymouth, Worcester, or any other city in Massachusetts, our free loan agreement form will help you get started.