Loan Agreement in Tennessee: Comprehensive Guide to Loan Agreements in Tennessee
A loan approval could be the one thing that changes things for your business or home forever, but it could also be the one thing that destroys everything or the little you are left with. Of course, most of us take on loans in the hopes of making significant positive changes rather than as a means to self-destruction, and your financial management skills will be adequately put to the test in determining whether things turn out as planned or not. And you also need to keep in mind the fact that there is a thin line between financial success and failure, which is why we need to address loan agreements, and everything you need to know about the agreements and how this agreement would help you make the right decision.
What is a loan agreement?
Also called a loan contract, a business loan agreement, or a promissory note, a legal loan agreement in Tennessee refers to the legally binding and the formal contract drawn between a lender and borrower. This contract spells out the details of the loan, and it also specifies important elements of the loan, for example, the payment term, interest rate, and the amortization period, among other clauses. This document honors the fact that it would be a terrible idea for the parties to the credit financial transaction not to put in writing what they agree upon, which means this written loan agreement makes it easy for the rights and the obligations of the agreement to be specified.
In cases where the lender and the borrow are reasonably well-known to each other, the loan agreement will also come in handy in that it brings in a formality element that would prevent any unnecessary disputes of misunderstandings that might arise. With the terms, roles, and obligations of the parties to the agreement specified, it would be easy for the parties to resolve the disputes that might arise in the future.
The agreement is also a crucial document because it will breakdown the relationship between the parties to the agreement, ensuring that the creditor/ lender will have legal recourse in case the borrower is unable to make their payment.
That said, you could use a loan agreement if loaning a significant amount of money to your friends or family or to another business. This agreement comes in handy for sole traders, LLPs, and other partnership businesses, as well as limited companies who need an extra blanket of financial protection, even when you are somehow certain that the borrower will be able to repay the money borrowed.
The other monumental reason why the loan agreement is a crucial document is that its species, the interest rate that the lender charges on loan. It’s important to keep in mind that the loan amount is affected by the interest rate, and most importantly, the interest rate charged will vary depending on your credit score and the value of the loan you are requesting. But these conditions do not imply that you have no right or option to negotiate for a lower interest rate because you do. Also, you can shop for lower interest rates.
The other important consideration of loans and interest rates is that the state provides a maximum limit for interest rates. In your loan agreement in Tennessee, the maximum rate of interest allowed is 10% for loans above $1,000, but this limit is not applicable to credit cards, meaning that you cannot complain if your credit card comes with an APR of 18%. The 10% interest rate also applies to court judgments. The other exceptions to these loans include installment loans, single payment loans, as well as savings and loans. Companies and lenders who break these laws will be penalized. The penalties for usury include the courts deeming the contract unenforceable, and if the contract is determined as unconscionable, then the lender will be required to refund the fees, charges, plus the commission fees in full, and the plaintiff might also recover the attorney fees. Note that committing usury and the willful collection of loan payments at usurious rates is punishable by law deemed a Class A misdemeanor.
To find out more about the sections and provisions present in most loan agreements, you might want to download our free Tennessee loan agreement form. The loan agreement template gives you a complete overview of what to expect from the lender, as well as an understanding of boilerplates and jargon used in the finance world.
Important Sections in the Loan Agreement
Some of the sections that you must review include:
- The loan amount and the APR
- The repayment schedule which specifies everything you need to know about the amount of money you will be paying each month. Avoid contracts that require payment of small monthly amounts but forcing borrowers to make one huge final payment – this is unreasonable and dangerous. Check the repayment date too.
- Whether the loan is secured or unsecured, and the specification of the collateral for the loan, if it’s a secured loan
- The restrictions and the obligations of the borrower
Difference between Loan Agreements and Promissory Notes
If you think that the details or the comprehensive state of the loan agreement is too much and unnecessary, either because the sum of money involved is small or because the transaction is between 2 private individuals, the promissory note form would be a great option for you. It could be used by businesses too. The promissory note only needs the signature of the borrower to be enforceable, and it’s also called an IOU.
Whether you are in Knoxville, Memphis, Nashville, Chattanooga, Gatlinburg, Franklin, or any other city in Tennessee, you can access and download our free loan agreement form here with ease.