Loan Agreement in South Carolina: Contract Clauses You Should be Aware Of
A loan contract is one of the most important financial documents you will sign, especially if you are planning to accept a loan offer. While most draft and final loan contracts often appear perfectly woven, there might be clauses that are more favorable to the lender, but unfavorable to you. These clauses might vary depending on the industry you are in, but being aware of the clauses and their implications is one of the most important steps when it comes to the handling and processing of loans.
But before we look at the different loan clauses that you must be aware of, let’s first take a look at the basics of loan agreements.
A loan agreement, also called a loan contract, a legal loan agreement, a business loan agreement, or a promissory note refers to the legally binding agreement drawn between the lender and the borrower, and signed off on by these two parties. This agreement lays out all the terms and conditions of the loan, conditions with which the lender is ready to lend the money if they are agreed upon by the borrower.
This agreement is also an important component because it addresses important components of the agreement, including the rights and also the obligations of the parties to the agreement. This agreement also specifies the amount of money being borrowed, the interest payable on the loan, as well as the repayment schedule. In addition to these, the agreement will also specify the measures and steps taken by the lender in case the borrower defaults. Thanks to these functions of the loan agreement, you need to look out for yourself by knowing how to negotiate for better terms, the terms to negotiate, and clauses that might be prohibitive.
To ensure that you know what you are getting yourself into and to know what should be in agreement and what shouldn’t, we recommend downloading our free South Carolina loan agreement form. The loan agreement form gives you a comprehensive overview of the loan agreement in South Carolina, and what you should expect. For example, the repayment schedule is one of the most important sections in the loan agreement, but it’s also negotiable. Using the draft loan contract sample, you will have a general overview of what to expect.
The other important consideration to bear in mind has to do with the interest rates. Knowing the prescribed loan interest rates in the statutes goes a long way in protecting you from expensive loans.
Like all other states, the state of South Carolina has put in place laws governing interest rates. The maximum rate of interest prescribed by the state is 8.75%. However, when it comes to the court judgments and other money decrees, the interest charged equals the prime interest rate that’s listed in the 1st edition of the Wall Street’s Journal published every calendar year during which said damages would be awarded, in addition to 4% points, at an annual compounded rate of interest. Overall, however, the interest rate applicable to legal judgments is 12%.
The penalties for usury laws and usurious interest rates were repealed in 1982, even though old laws might be used for transactions reported before that time.
Clauses You Need to Watch Out For
Who covers the attorney fees when you default your payment? In most cases, creditors might award themselves the attorney fees if you default and they have to take legal action for them to be paid. In cases where this clause is incorporated in the contract, make sure that the percentage is reasonable and within the statutory limits/ recommendations. Talk to your lawyer to ensure fair terms.
This is the other important clause that you need to take time to review. Essentially, lenders/ creditors make use of balloon payments to make a loan appear affordable, and for borrowers who cannot afford specific monthly fees to afford the loan. To make this possible, the lender gives a borrower the option to make small regular payments to pay off the loan, and one large final payment, the balloon payment. Such payments are quite a risk because most borrowers cannot afford to make that one final payment, which means the lenders often end up repossessing or foreclosing on the property put up as collateral for the loan. So, if the draft loan offer on the table comes with the provision for balloon payments, it would be a good idea to negotiate for different terms.
The Acceleration Clause
Some loans feature acceleration clauses, a clause that allows the lender to declare the full balance of the loan due if the borrower defaults the payment, misses a payment, or if they violate terms of the loan agreement. For example, if you don’t pay taxes or if you fail to pay insurance, the acceleration clause might be activated. With such clauses, it would be a great idea if the contracts come with the option to reinstate a loan, even after it has been accelerated and before the collateral for the loan is repossessed by the lender.
Confession of Judgment
Watch out for the confession of judgment clause with which the lender gets to take an automatic judgment against you in the event of a defaulted payment. This clause shouldn’t be in the contract.
The other clauses you need to watch out for include clauses regarding prepayment penalties, the need to buy credit insurance, and security interest.