Loan Agreement in New Jersey: Prohibitive Clauses to Watch Out For
Which are some of the things you go through when you are reviewing the terms of your loan agreement? Would you question the terms of the agreement if they felt unfavorable, and would you request your lender for even more favorable terms if you felt that a slight negotiation of the terms downwards would make the repayments more flexible and fair for you?
While taking out a loan, either for personal or business reasons, can be scary, and no matter how urgent your need for the cash might be, you should never rush into signing that loan agreement before you understand the terms of that agreement. And if you don’t understand some of the complex and hard terms incorporated into the agreement, then you should consult the services of a professional to guide you through the agreement and the complex terms. The reason for taking these precautions is that once you sign the agreement, you won’t be able to go back on your word on it, and if you do, you might suffer from expensive repercussions, some of which you might never come off. So, to help you avoid costly mistakes, we’ll go through all the important provisions of the loan agreement to help you create the best, and the most favorable terms.
For starters, you need to bear in mind that the loan agreement is a legally binding document between a lender and a borrower. This legal instrument specifies the responsibilities of the two parties to the agreement – in this case, the borrower, using this agreement, pledges to repay the loan at the interest rate provided by the stipulated date. The lender, on the other, promises to disburse the loan amount specified in the agreement on the effective date, which is also the date that the loan agreement is signed by both the lender and the borrower.
You also need to keep in mind that at the end of the day, the only section of that loan agreement that would be in your favor, as the borrower, is the section that specifies the loan amount – and you can’t really argue about that. With that in mind, remember and always assume that all the other sections of the agreement are always designed to maximize the lender’s (bank’s) chance of always getting their money back. This is also the reason why in as much as you might have your copy of the free New Jersey loan agreement form, the bank is always coming up with the initial draft of that loan contract. And if you are not careful about the terms and that language used in the agreement, you might not catch the boilerplate language that the bank uses to ensure that the terms are extremely favorable to them. With this in mind, you should be able to review, question, and negotiate the terms of the agreement.
That said, here are some of the important considerations that you need to keep in mind and watch out for before you sign your loan agreement in New Jersey.
Things to Watch Out For In Your Loan Agreement in New Jersey
Interest Rates and Repayment Terms
The interest rate charged for your loan amount is an important consideration that you need to keep in mind, and though most people often assume that the first and reasonably low recommended rate of interest is often the best, it isn’t always. And the good news is that you could negotiate for better terms. However, the most important thing you need to keep in mind is that the state has put in place a maximum legal rate of interest, which you should be aware of. The maximum rate of interest acceptable by the state of New Jersey is 6% in the absence of a written contract and 16% in the presence of a written contract. And though the rates could go up, loans in excess of 30% or even 50% for LLCs aren’t acceptable. In the case of usurious rates, the only amount that the borrowers can recover is the amount lent. These lenders might also be charged since usury is regarded as a criminal offense, and these lenders might be charged a fine as high as $250,000.
Would you have to pay the attorney and all the legal fees if you defaulted on the loan payment and if the lender had to sue to be paid?
While you get to negotiate the terms of the agreement depending on your revenue projections, financial capability, and your relative bargaining power, one important consideration that you need to keep in mind is that the payments schedule you to settle for needs to be flexible and reasonable. So, in as much as the initial regular super-low repayment plan might sound like a great idea, you don’t want to settle on a plan that requires you to make one large final payment. Balloon payments are quite dangerous, and you might be unable to repay the loan in full.
One of the important considerations that you need to keep in mind is that the lender might include a clause that declares the whole balance due, especially after defaulting, for example, if you miss a payment, violate one of the terms of the agreement, or even failure to pay taxes. Such a clause is unfavorable, and you should avoid such an agreement or negotiate for the removal of the clause.
The other clauses you should be wary of include prepayment penalties, as well as the terms of the default and collateral.
To get started with your loan contract in Trenton, Jersey City, Newark, Atlantic City, Princeton, Paterson, or any other city in New Jersey, download our free loan agreement form here.