Loan Agreement in Washington: Provisions to Watch Out For
A loan agreement is a legally binding instrument that becomes enforceable once it’s signed by both parties to the agreement, the lender and the borrower, and neither party can go back on their words or feign ignorance, and if they do, there will be consequences. This agreement lays out the terms of the agreement while also specifying the obligations and the responsibilities of both parties. With the power that the loan agreement in Washington wields, it would be a great idea for you to review the terms of the loan offer before signing off on it. Remember that as far as the lender is concerned, the terms of the contract will always be in support of the lender, and they will always have the upper hand. However, this doesn’t mean that you give up the fight, blame capitalism, and accept the loan’s terms without question. At the very least, you should think of negotiating the duration of the loan’s repayment, the interest rate, and the conditions for default. And you also need to know about the considerations and terms specified on things like default, and the steps that would be put in place before your property is repossessed or your home foreclosed.
To get started, the first step that you should take to protect your interests is to get 6yourself our free Washington loan agreement form. This loan agreement form template features all the integral components of a loan contract, and it will not only familiarize you to th6e actual loan contract but also make it easier for you to negotiate for more favorable terms.
In addition to the loan agreement form template, you need to familiarize yourself with the state laws on usury, and the maximum rate of interest that is acceptable.
Washington State Usury Laws
If you are taking a loan in the state of Washington, you need to know that the allowable state limits on interests without written agreements is 12%, but the interest rate could be higher where you sign a contract. The same rules apply to legal judgments where the maximum allowable interest rate is 12%. Lenders who break these laws will be penalized with borrowers recovering up to two times the amount of interest already paid. The lender also covers the attorney fees and any other associated costs.
The usury laws do not, however, apply to broker-dealer sales contracts offering deferred payments, loans to finance mobile homes, and retail instalment transactions or contracts.
Provisions/ Clauses to be aware of
Be careful if the proposed loan contract comes with an acceleration clause. The reason for this is that the acceleration clause gives the lender the right to declare and request immediate payment for the loan payment due, especially after missing a loan payment of violating other terms of the agreement, for example, the failure to pay or maintain insurance or taxes. And if the lender insists on this clause, you could either keep shopping for alternatives or come to a different agreement where the lender might be able to reinstate the accelerated loan if you make the necessary payment within a specific time.
The other clause you should be wary of is a provision that requires you to make balloon payments. If this is your first rodeo with such terms, you should know that balloon payment represent some of the most dangerous payment plans, which though enticing, must be avoided. In a balloon payment structure, the payment schedule targets borrowers who cannot afford the normal monthly payments as they are significantly high. In this arrangement, however, the monthly installment payments are ridiculously low, but the last final payment is often too high, and most of these borrowers cannot afford to make that payment, hence foreclosed homes, among other losses. Therefore, we recommend avoiding such loans and repayment plans because the final payment would be too expensive for you.
If the contract provides that you will be the one to cater for attorney fees if and when this cost arises, you need to make sure that this fee is a reasonable rate and not too much. In most cases, the attorney fees shouldn’t exceed 15% the value of the total amount of money owed.
Confession of Judgment
This condition provides that the lender has the automatic right to make a judgment against you I case of a defaulted payment, even without taking to court. While consumer contracts generally prohibit such provisions, some unscrupulous lenders still enforce them, and you should be careful and avoid such terms.
Avoid contracts that charge you for paying off your loan before maturity. This penalty is unfair, and the only time you should be charged the prepayment penalty/ fee is when you’ve taken a new mortgage, especially if the APR rate is fixed if it’s a qualified mortgage or a higher-priced mortgage loan.
To create your own loan agreement in Spokane, Seattle, Olympia, Vancouver, Yakima, Everett, Tacoma, or any other city in Washington, download our free loan agreement form here.