Clauses to Review Before Signing Your Loan Agreement in New Mexico
A loan agreement is a legally binding agreement between a lender and a borrower. It’s also called a credit contract, a loan contract, or a business loan agreement, and besides being an enforceable agreement that allows both parties to stick to their end of the bargain, it also specifies the responsibilities of the parties to the agreement. The catch, however, is that even though you expect the terms of the agreement, those terms aren’t always in your favor, and besides getting the loan amount you wanted or negotiated, all the provisions of the loan agreement aren’t always in your favor, and you need to go through the provisions/ clauses incorporated into the agreement, especially if they are prohibitive. With this in mind, if there are provisions that you do not agree with, then you might have to go shop elsewhere for better terms.
A free New Mexico loan agreement form allows you to familiarize yourself with the provisions that should be in your loan agreement. Before you sign the loan agreement in New Mexico, you also need to know that the state of New Mexico has put in place usury laws to protect consumers from exploitative interest rates. The maximum legal rate of interest acceptable by the state in the absence of a fixed, written contract is 15%, and in case of a contract, the rates might vary, and according to the requirements set out in Section 56-8-3 of the statutes. Lenders found guilty of charging usurious interest rates would have to forfeit the interest rate, and if the borrower already paid some of the interest, they might recover up to twice the total amount already paid. It’s also worth noting that the legal rate on legal judgments is 8% unless the contract specifies the interest rate applied. However, in the case of tortious conduct, then the rate of interest on judgment would be 15%.
That said, here are some of the important terms and clauses that you need to review before you sign the agreement.
The acceleration Clause
The acceleration clause is often found in deeds of trusts and mortgages, and it’s one of the clauses that might make things harder for you months or years later as you service your loan. The reason for this is that the acceleration clause is the part of the loan contract in which the lender declares that they have full and automatic authority over the due loan balance in your account and they can accelerate the loan and ask you to pay the full balance in case you default on the loan payment. So, whether you miss a payment, violate one of the terms of the loan contract, or even fail to pay taxes or insurance, the lender would automatically declare the loan due. The laws are not uniform for all states on this matter, but in some cases, you might get to reinstate the loan after its acceleration if you pay the fees and the past-due amount 5 days before the stated foreclosure sale.
Some lenders make their loan payments appear affordable to borrowers who are unable to afford expensive monthly repayments by allowing borrowers to pay low payments regularly and one large final and large payment. This payment option is called a balloon payment, and though it seems like an attractive option, it’s a very dangerous plan. Often, the borrowers on the balloon payment plan cannot afford to make the large final loan payment once it becomes due, and in case of non-payment, the lender would have full rights to repossess or even foreclose on the property, or even take control of your business. With that in mind, you need to avoid a loan agreement, especially if the lender insists on this payment option.
The good news, however, is that Federal laws prohibit balloon payments on qualified mortgages.
The other thing you need to keep under consideration is the terms of the loan with regards to the attorney’s fees, should you default on your payment. Confirm whether you will be responsible for the attorney’s fees and the percentage of the fees that you are allowed to pay. Often, the attorney’s fees shouldn’t exceed 15% of the full amount of the loan owed.
Confession of Judgment
This provision allows the lender to take the automatic judgment of the borrower in the event of defaulted loan payments without having to sue the borrower in court. Though some lenders incorporate this clause into the agreement, it’s prohibited in most, if not all, consumer contracts.
Lenders will often look for all possible ways of making money from borrowers, and if you pay your loan early, you might still be penalized and forced to pay a prepayment fee. That shouldn’t be the case, though, and though the lenders do this to make up for the loss, you should ask your lender to remove the prepayment fee clause. The prepayment clause is often a percentage of the balance, and it’s quite expensive, though unnecessary. The only times that the prepayment penalty is legal is when the loan is a qualified mortgage, if the APR of the loan cannot be increased, and if the loan isn’t a high-priced mortgage loan.
Remember to only sign the loan agreement when you are satisfied with its terms.