Everything You Need to Know About The Loan Agreement in Wisconsin
Often, the difference between the borrower who gets the most favorable loan rates and the one whose rates are somewhat unreasonable lies in the knowledge in between these individuals. Knowing what to expect and state laws on usury could go a great way in granting you a loan at fair terms, which is why an understanding of your loan agreement in Wisconsin is crucial. In this article, we’ll take a look at everything you need to know about loan agreements.
What is a loan agreement?
A fairly standard legal instrument, a loan agreement refers to the legally binding contract which lays out all the terms of a loan, while specifying the relationship and the obligations of the parties to the agreement. This contractual document is often used where a substantial amount of money is expected to exchange hands, especially when the lender and the borrower don’t really each other, in business settings, and even between persons who know each other but still wish to have a formal footing. Besides individuals, the loan agreement might also be used by LLPs, LLC, and small businesses, among other businesses.
If, on the other hand, you need a simpler document to record the agreement and the promise by the borrower to repay the full loan amount plus interest by a specific date, either in a lump sum payment or in regular monthly installments, you might want to use the promissory note. The promissory note is also legally enforceable, though less formal, and it’s also the ideal option where a smaller amount of money is involved.
To make use of the promissory note or the loan agreement, the first thing you need to do is to download the free promissory note form or the free Wisconsin loan agreement form. The loan agreement form template is rather comprehensive as it has all the bells and whistles needed to create a complete loan contract.
So, what makes a complete loan agreement?
Before you sign a loan agreement in Wisconsin, you first need to understand the important components of the agreement. Going through the fine print is also important because it allows you to review and negotiate for better terms where possible.
That said, these are some of the important sections of the loan contract:
This part of the agreement will specify the loan’s effective date, which is also the date that the lender disburses the loan requested. It also features the details of the parties to the agreement, as well as their relationship with each other, or how the parties would like their relationship to be defined, for example, when there is a co-signer involved.
The loan amount and the interest rate
The loan amount is the full value of the loan, the amount that the borrower is expected to repay, and it includes the interest rate charged and other fees and charges, for example, the origination fee. Out of this amount, there is the principal amount, which is the amount of money that will be disbursed into the borrower’s account.
One thing to note is that the interest rate is often variable, and the rate charged by the lender pretty much determines whether the loan you sign up for is expensive or not. While taking into consideration the market rates and the average interest charged by other lenders, the APR, you also need to take into account the statutory provisions for statutory laws.
The state of Wisconsin has capped consumer loan interest rates at 5% where there is no written contract, and if there is a contract, then the agreed contract rate goes. The interest rate on legal judgments shall not exceed 12%. Lenders who violate these laws intentionally will be fined between $25- $500 or face prison time of up to 6 months.
These laws do not, however, apply to credit unions, state-chartered banks, savings and loans, auto installment contracts, loans to corporations, or residential mortgages.
This section specifies the duration within which the loan should be repaid, the amount of money to be repaid in each installment, and the balance due after each payment. These terms are negotiable, and you shouldn’t sign off on the schedule if the repayment schedule is not flexible, especially if you have bargaining power.
This is the asset put up as security for the loan. It could be land, stocks, property, or equipment, etc. Be careful what you name as security for the loan.
What happens when a loan is defaulted? Are there waivers? What is the cure period? These are some of the important things addressed in this section of the loan agreement.
For help with loan contracts in Green Bay, Madison, Milwaukee, Wisconsin Dells, La Crosse, Kenosha, or any other city in Wisconsin, download our free loan agreement form here.