Loan Agreement in Michigan: Things to Watch Out for in Loan Agreements
Whether your lender calls it a loan agreement or a credit contract, or even a money lending contract, you need to keep in mind that the loan agreement in Michigan refers to the legally binding and enforceable contract between the lender and the borrower, and it lays out the terms of the loan, as well as the repayment and default terms. While most of the terms of the agreement will be largely favorable, others might not be very fair at first, and you might have to negotiate for better terms, which means that you should only sign the agreement when you are certain that the terms are ideal for you. That also means that if you are looking for a lender, you shouldn’t settle on the first option you come across, and if you have to, the very least that you could do is to go through the terms of the agreement to be certain that you know exactly what you are getting yourself into
To ensure that you know exactly what you are getting into, we recommend acquainting yourself with the documentation used in processing loan payments, specifically the loan agreement form in Michigan. Even though there are numerous companies around coming up with the sample loan agreement documents, the best free Michigan loan agreement form is an almost complete document that features all the important sections that only need a bit of tweaking and specification of details such as the loan amount, interest rate, loan repayment schedule, as well as the signatures of the lender and the borrower, and collateral for it to be enforceable.
Keep in mind that although the loan agreement is also called the promissory note in some cases, these two are largely different documents and you shouldn’t confuse one for the other, because in as much as they both create a legally binding agreement that ties the lender and the borrower, the promissory note has few sections, and it doesn’t really go into details on the terms of the agreement. It’s used in smaller transactions, and it will only carry the signature of the borrower who pledges to repay the money at a certain interest rate, on an agreed date. You can have a secured promissory note and an unsecured promissory note. The loan agreement or loan contract, on the other hand, is quite comprehensive and it breaks down all the important elements of the loan, the relationships, and obligations of the lender and the borrower, collateral, steps to be taken in the event of a defaulted payment, and most importantly, it bears the signatures of both the lender and the borrower. However, you need either a promissory note template or a sample loan agreement to get started.
Important Things to Watch Out For
One of the most important considerations that every borrower must keep in mind before signing a loan contract through a loan agreement in Michigan or a promissory note is to make sure that the interest rate charged is not only fair but also within the statutory limits on interest rates. Your credit card interest rate might be exorbitant, and the APR on that personal loan might be very attractive, but did you know that the legal maximum interest rate set by the state of Michigan in 5% on loans without enforceable agreements and 7% for loans that are provided after signing of a written contract.
The other thing you should know is that the lenders who are found offering usurious interest rates would face penalties whose effects include the loss of the total interest charged on the loss, loss of official fees, and they might also be charged collection and delinquency fees, as well as the court and the attorney fees. For court judgments, the rate of interest charged is 1% in addition to the average interest that’s payable at auctions for 5-year Treasury notes offered 6 months after January/ July 1st.
The above laws do not, however, apply to credit union loans and small loans.
The other things that you need to watch out for are listed below.
Attorney Fees – often, the borrower will be required to pay the attorney fees in case of defaulted payments, where the lender is forced to sue to be paid. There’s often a limit to how much you could be asked to pay in attorney fees, though, whether this provision is present in the agreement or not.
Balloon Payment – How is your loan repayment structure like? Do you get to pay small and often low monthly repayments (regularly) for a long period of time then have to make a large final payment or a balloon payment at the end? Are you okay with this arrangement? Though it’s enticing to make small monthly repayment, a balloon payment is quite dangerous, and you might not afford to make that payment when it’s due, which means that the lender might foreclose on your property or repossess your car. And though the laws are against such plans, it would be a great idea to avoid a loan agreement with this payment option. Most states prohibit this payment option.
Confession of Judgment – this is where the lender takes a judgment against the borrower who’s defaulted payment, even without taking them to court. This is also prohibited in state laws.
Credit Insurance – Your lender might ask for credit insurance because it cushions them, but at the end of the day, this is just another way that the companies rip you off.
Prepayment penalties – To be safe, we recommend that you avoid taking on loans with a prepayment penalty. You shouldn’t be penalized for repaying the loan in full before the agreed date. This penalty is also quite expensive because it’s often charged as a percentage of the balance you are paying. So, avoid this at all costs, unless you are dealing with a qualified mortgage, working with a fixed-rate loan, or if the loan isn’t a higher-priced mortgage loan.
Whether you are in Detroit, Ann Arbor, Lansing, Grand Rapids, Flint, Kalamazoo, Traverse City, or any other city in Michigan, you can download our free loan agreement form here to get started with loan application processing.