Loan Agreement in Texas: Personal Loans Mistakes You Must Avoid
Whether you are negotiating the terms of a personal loan for use at home or for your company, there are rules that you must abide by for you to be on the safe side of things, to protect your interests and to sign off on the loan only when you are sure that the terms are fair and reasonable.
A loan agreement form is one of the crucial documents that ensure the protection of the interests of the lender and the borrower. A legally binding legal instrument, the loan agreement lays out the terms and the conditions that the lender is willing to lend funds under since the lender will only release the amount of money specified in the agreement once the borrower signs the agreement documents where the borrower pledges to repay the full amount loaned plus interest and associated fees, per the terms of the agreement. The loan contract will also specify the rights and the obligations of the parties to the agreement, as well as the repayment schedule, and the steps to be taken by the lender if the borrower defaults the payment.
But knowing these details about the loan agreement is not enough, which is why we recommend downloading our version of the free Texas loan agreement form. This form is a comprehensive loan agreement sample that will familiarize you with all the important components of the loan contract. While it doesn’t come with the offer from the lenders you have been wooing, it features the important sections and clauses that you’ll need to review and even negotiate before signing the loan agreement in Texas.
Besides the state-specific loan agreement sample, you also need to be aware of the specific laws applicable to interest rates. Like all the other states, the state of Texas has strict usury laws designed to protect the consumer. The primary reason for this protection has been fueled by the fact that even with the 5-15% recommended interest rate, most of the time, consumers will consent to higher interest once they sign the agreement. The state is determined to protect consumers, hence the recommended interest rate of 6% in the absence of a written agreement, 18% rate of interest for legal judgments, and a maximum rate of interest of 10% for written contracts in loan contracts, as well as promissory notes.
Lenders charging usurious rates are punishable in various ways, including the borrowers recovering at least three times the computed amount less interest allowed by law from the rate of interest charged; or $2000, or even 20% the principal amount; whichever is lesser. The lender/ creditor would also be liable for the attorney fees, and this misdemeanor will attract a fine, not exceeding $1000.
Note, however, that these laws do not apply to business loans, loans for investments of commercial use, or loans in open-end accounts.
Now that we have these basics out of the way let’s take a look at some of the mistakes you must avoid when it comes to personal loan agreements and the loans.
Mistakes to Avoid
1. Assuming the Method Used to Calculate Interest
Whether you are taking a substantial loan for personal use or if you are getting a home loan, you need to know how the interest rate will be calculated for you to determine how much the loan will eventually cost.
Some lenders use simple interest methods where the interest rate will go up or down depending on the amount borrowed and the length of the loan. There’s also the compounding interest method in which the interest accrues continuously on top of your loan’s existing interest while you make payments towards the loan. The compound interest could be calculated daily or monthly. In other cases, the loan interest will be pre-computed, with everything incorporated onto the monthly loan repayment amount. Beware about the interest calculation method to determine the most viable repayment method.
2. Overlooking the Origination Fees
The origination fee refers to the loan that’s used to process the loan application. It applies to personal loans, including consolidated debt loans, home loans, and all other loans. This is one of those costs that you must factor into the agreement, and the fee is determined by the bank or creditor of your choice depending on a set percentage that’s based on the amount of money being borrowed. The origination fee varies depending on the lender and the type of loan, but you also need to know that you don’t have to pay the full value of the origination fee upfront because the fee could be rolled into the total amount of the loan.
Always read the fine print and seek clarification on terms you don’t understand, especially if there will be a penalty imposed as a consequence. Penalties you should be aware of include penalties for prepayment, late fees, defaulting, etc.
Before signing on the dotted lines, go through the terms of your loan agreement in Texas, and make sure that the terms provided are reasonable and fair to you. Use our bargaining power and future revenue expectations to negotiate for more flexible terms.
For an understanding and the processing of loan contracts in Austin, Dallas, Houston, San Antonio, Waco, El Paso, Texas City, Fort Worth, or any other city in Texas, download our free loan agreement form here.