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Fillable Form Consumer Loan Agreement

A Consumer Loan Agreement is an agreement that indicates all the credit sales to be paid, hire-purchase, secured and unsecured loans, given to a consumer to finance specific types of expenditures by a creditor.

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What is a Consumer Loan Agreement?

A consumer loan agreement is a contract in which a borrower and lender regulate rules of mutual liability for granting a loan. The loan agreement is used to finance the consumer’s expenditures and served as a document of mutual promises made by the involved parties.

How to fill out a Consumer Loan Agreement?

Filling out a consumer loan agreement is simple. You just need to have the basic information of the borrowers, the lenders, and if applicable, the co-borrowers.

1. PARTIES

Enter the full legal name of the borrower and enter the full legal name of the lender in the blank space provided, respectively.

2. DATE OF AGREEMENT

To get the right order, enter first the day, month, and year for this agreement.

3. PROMISE TO PAY

Indicate the number of months that the borrower promises to pay the lender.

Enter the amount of money you loan in words.

Enter the amount of money in numbers.

4. RESPONSIBILITY

Read and understand the agreement so far before you fill out the preceding terms.

5. BREAKDOWN OF LOAN

Indicate the amount of money that you will pay to the lender as follows:

  • Amount of loan
  • Other. Specify the details.
  • Amount of financed.
  • Total of payments.
  • Annual percentage rate.

6. REPAYMENT

  • Enter the full amount you would like to loan.
  • Enter the monthly amount you wish to repay as installments.
  • Enter the specific day for each starting month for amending your payment.
  • Indicate the day, month, and year as the start of your payment.
  • Indicate the day, month, and year as the end of your payment.

7. PREPAYMENT

Prepayment is an early payment of the remaining outstanding balance of the loan to get a rebate and take advantage of lower interest rates. A prepay could either be settled in parts or full.

8. LATE CHARGE

Enter the amount of late charge interest.

9. SECURITY

State the security interest to create a legal claim on collateral that has been pledged.

Note: A security interest grants the lender the right to repossess all or part of the property if the borrower is unable to pay the loan.

10. DEFAULT

When the borrower fails to make the payment on time, the lender has the power to demand to have the remaining unpaid loan balance and when the final payment is due, interest will be added to the unpaid payment. Enter the amount of interest in words and type it in numbers in the parenthesis.

11. RIGHT OF OFFSET

Be advised that the lender will have the right to pay the loan by taking your money from a deposit account or security to cover the unpaid payments at any time the borrower fails to commit to paying the loan.

If given an extension of time to pay the loan, the borrower still must repay the remaining unpaid balance.

12. COLLECTION FEES

A collection fee compensates the attorney for collecting a loan, and the attorney’s fee of 15% will be added to the unpaid balance of the loan.

13. CO-BORROWERS

If there are co-borrowers for this loan agreement, the co-borrower agrees to the liabilities pledged together with the borrower.

SIGNATURE

Sign the loan agreement with the borrower, lender, and co-borrower to acknowledge and pledge agreement with the terms of the loan. If you fail to commit to the terms, you will face consequences and penalties.

Frequently Asked Questions About a Consumer Loan Agreement

What is the purpose of a Consumer Loan Agreement?

The principal purpose of a loan agreement specifies the agreements the involved parties are agreeing to, their responsibilities, and the period that the agreement will last. Legally, a consumer loan agreement shall abide by the law of state and federal regulations for the protection of both the lender and the borrower at a time that they may have failed to obey the agreement.

Furthermore, loan contracts clearly state the intent of lending and how the terms will take into action. A signed loan contract serves as evidence that the borrower and the lender have agreed on how the funds will be used and how the money will be paid.

Why do you need a Consumer Loan Agreement?

Borrowing and lending money is a big commitment regardless of the amount, therefore, having an agreement is vital for protection in terms of amending the loan, especially if it breaks the precepts. Generally, a loan agreement presents all the details and the purpose of the loan. The terms are essentially needed for specifying commitments, such as the amount given, expectations in return, ways, and period of time.

How do I write a loan agreement?

Writing a loan agreement requires the knowledge and expertise of many disciplines, including legal and finance. A loan agreement is also known as a promissory note or term sheet, and it dictates the terms under which a creditor lends money to the debtor.

To write a loan agreement, you need to consider many things, including the debtor's current financial status, the amount of money the debtor requires to pay off debts, and if there is another creditor, the creditor's agreement to an arrangement for repayment.

Some lenders use a pro forma loan agreement or standard documents to avoid the need for a legal opinion on a specific agreement, but this option is usually used when the borrower has been through credit checks and has a good financial history. Pro forma agreements are often modified according to individual circumstances.

To write an effective loan agreement, it must have the following items:

  • A list of parties involved, a description of the loan, and any collateral involved.
  • Identification of the amount loaned and what will happen if payments are missed or there is a default on the loan.
  • Repayment terms, including specific dates for repayments as well as interest penalties for late repayment.
  • There may also be a provision for the sale of collateral in case repayment becomes impossible.
  • All terms and conditions which both parties agree to.

The language used must be clear and unambiguous. Moreover, as with any contract, the borrower should take time to review it carefully before signing it. If the borrower is unsure of something, they should ask the lender to clarify before signing.

What makes a loan agreement legal?

A loan agreement becomes legal when it is signed by both parties. A loan agreement can be written or oral. Moreover, a loan agreement can be formal or informal. In order to establish a contract, three elements are required:

  • Offer — The offer made by one party to another.
  • Acceptance — The offer made by one party must be accepted in order for a loan agreement to be established. Take note that if one party declines an offer, the other party cannot force him or her to accept it.
  • Consideration — Consideration is the price paid by one party to another for something. In order for a loan agreement to be established, each party must pay consideration to another. One must provide something in exchange for what the other provides.

Are loan agreements legally binding?

Loan agreements become legally binding and enforceable in court when signed by the parties involved. Although the primary purpose of a loan agreement is to communicate the specific terms and conditions for borrowing money, agreements generally contain several other clauses that may be legally binding.

Some clauses in a loan agreement are intended to help a borrower's relationship with their lender, while others serve to protect the lender from legal liabilities.

What is the difference between a business loan and a consumer loan?

A business loan and a consumer loan are two very different things. They have different purposes and use-cases, as well as their own sets of risks, which makes them suitable for certain kinds of borrowers but not so much for others.


In the case of a business loan, it is more likely that you will be using those funds to buy equipment or hire new employees rather than just to cover personal expenses. However, the business loan is still a loan, meaning that your company will have to pay back the lender with interest. On the other hand, with a consumer loan, you are most likely using those funds to purchase an item or service that is for personal use only. With those descriptions in mind, the following are the main differences between these two types of loans:

Purpose

  • A business loan is used for business purposes. However, it can also be used for personal purposes as long as the business is profitable. If you are a sole proprietor or a small organization, then this loan may be ideal for you.
  • A consumer loan is used to purchase items with a very low return on investment. These can include furniture, appliances, and other non-productive assets. In many cases, people apply for consumer loans to pay off high-interest credit card debt.

Interest Rates

  • A business loan can have a fixed or adjustable interest rate. On average, a fixed rate is around 3% lower than an adjustable one. While the former is more common with long-term business loans, adjustable rates are more common with short-term business loans.
  • With a consumer loan, the interest rate will vary depending on your creditworthiness. If you have good credit, then you can expect an Annual Percentage Rate (APR) of about 5% to 9%. However, those with bad credit will be paying between 10% and 30%, and sometimes even more.

Loan Repayment Term

  • A business loan is commonly made available in two types of terms: short-term and long-term. Short-term loans usually have a maximum time frame of around 3 years, while long-term loans can have terms up to 10 years.
  • With consumer loans, you usually have between 1 to 5 years to pay back the money that was borrowed. However, that amount of time may even be shorter if you choose a short repayment term.

Security

  • A business loan is typically supported with personal or business assets, such as a house, cottage, or other real estates that can be put up as collateral by the borrower. This makes it easier for lenders to determine your creditworthiness and is one of the reasons why interest rates are lower with this type of loan.
  • A consumer loan is usually supported with personal guarantees. If you have a bad credit score or have defaulted on your previous loans, then you may be required to give additional security to the lender. This can be in the form of a co-signer, who will take on the responsibility of repaying your loan if you are unable to do so.

How do consumer loans work?

Consumer loans work by letting people borrow money that they need to purchase goods or services. Contract terms are stated in writing, along with the interest rate. Many states have enacted legislation requiring lenders to provide contract terms in writing prior to the loan being made so that borrowers can shop around for loans with better rates, terms, and fees.


All consumer loans require a credit check and often both a credit check and an employment verification. Credit checks vary from "soft" — where the lender just pulls your report — to "hard" — where the lender requires you to give them a copy of your report.

If someone has bad credit, it does not mean they will be unable to get a loan. Once the loan request is made, the lender reviews the loan application and credit reports.

Lenders base their decision to approve a loan application on several factors: debt-to-income ratio, credit scores, and affordability of the repayment schedule — how much money you make and how much debt you already have. These factors will determine if you get approved, what interest rate you get, and what down payment is required.

Does a loan agreement need to be notarized?

Loan agreements do not necessarily have to be notarized. However, in most cases, it is suggested that this document be notarized. In most cases, the signatures of all parties involved would suffice to make a loan agreement legally binding and valid.

Take note that loan agreements are legally binding documents and must be drafted in accordance with the laws of the state in which they were made. All public agencies such as banks and lending companies require a fully executed loan agreement at the time of issuing loans to consumers.

Why is a loan agreement important?

A loan agreement is important because it is legally binding and it protects all the parties involved in a transaction. It contains the terms and conditions that are agreed upon by the lender and borrower. Moreover, a loan agreement ensures that both parties are clear about what is expected of them, thus, avoiding any confusion or misunderstanding later on.

Do you need a lawyer for a loan agreement?

You do not necessarily need a lawyer for a loan agreement since with the right contract and stating all the important terms and conditions in it, you can protect your interests and avoid costly mistakes that may cost you a lot of money or cause legal problems in the future. However, you should consider getting one for transactions that involve a significant amount of money or are complex.

It is also a good call to consult a lawyer before getting involved in a loan agreement to avoid legal consequences in the future.

Can I give a loan to anyone?

You cannot just give a loan to anyone, as there are considerations that need to be addressed, including terms and conditions of repayment. Moreover, you must consider the credit score of the borrower to help you determine whether this person is capable of paying off the loan that they are availing. This information will go on their credit report, which can affect their credibility in borrowing money for future needs.

Before you give out loans to people, it is essential that they pass your requirements first. Among them are the following:

  • Age — The age of the applicant is usually an issue only if it falls below 18 years old or above 65 years old.
  • Income level — The income level of the applicant must be high enough for him to afford your loan rates and still have money left.
  • Employment status — The borrower must also be working and not employed as a part-time worker.
  • Current financial responsibility — His or her current financial responsibility should be at par with your terms of the loan. He should have no unpaid loans, dues, or debts to be paid first before availing of your loan offer.
  • Credit history — Checking the applicant's credit history will also help you determine whether they are capable of repaying their loans or not. The rating of the borrower shows how he is able to manage his finances, especially paying off the debts that he has already incurred. It also provides you with information on whether this person pays his bills on time, has any bankruptcies, and if there are any unpaid loans out there.

What is the difference between a loan agreement and a promissory note?

A loan agreement and a promissory note are two separate documents. The loan agreement is a contract between you and the lender, while a promissory note is a contract between you and your school or a private individual from whom you are borrowing money. In both cases, despite being two different types of paperwork, they both serve the same purpose: They outline the details of your arrangement with the lender.

The Loan Agreement

Your loan agreement with the lender — a bank, credit union, or other financial institution) will spell out your rights and responsibilities as well as those of the creditor. It also specifies how much money you are borrowing, at what interest rate, for how long, and whether there is an early repayment fee. Be sure to read the entire agreement before signing.

This contract is between you and your lender, but it can include an endorser who agrees to pay the debt if you default on payment; that person becomes part of the deal. The agreement should also state whether there are late fees, prepayment penalties, or balloon payments (large final payment) associated with the loan.

The Promissory Note

A promissory note is a legal document that binds you to repay the loan. It will spell out your repayment timeline, including how much money you owe and when it is due. The interest rate should also be included here, as well as other details like any late fees or penalties for missing a payment.

What should I look for in a loan agreement?

You should review a loan agreement diligently to uncover any and all terms and conditions stated in the documents. Here is a list of some things you might want to investigate:

  • Loan Term
  • Repayment Terms — How often will you be required to repay? How much? Will payments increase? Are there prepayment penalties? Is there a balloon payment due at the end?
  • Principal Amount
  • Interest Rate
  • Initial Rate
  • Late fees — If so how much? How often are late payments assessed and reported to the credit bureaus? Will they affect my credit rating?
  • Fees — How much are the fees to process the loan and for what purpose will they be used? Will there be any other fees, aside from the loan processing fee that I should know about?
  • Security or Collateral — Is there an agreement that if I default on this agreement, I will lose my car, house, or personal belongings? * Will I be required to sign a security agreement to pledge my personal property as collateral?
  • Personal Guarantee

You must also know the terms and conditions and the process to take when you miss a payment or default on the loan. Also, know if you have the right to prepay the loan in whole or in part at any time without penalty?

You are entering into an agreement with a lender. Therefore, it helps to ask all the questions you have before signing any agreements. It is your money and you deserve to know how it will be handled, where it will go, and what may happen if you default on the agreement.

What is a private loan agreement?

A private loan agreement is a contract between an individual borrower and a lending institution — a private lender. The borrower — you — agrees to repay the loan plus interest in accordance with the terms of the agreement. It acts as a formal document that can be used to establish a legal obligation between the two parties. It also helps protect the rights of both you and the lender, as all terms are spelled out in writing.

How do you convince a lender to approve a consumer loan?

You cannot directly convince a lender to approve your consumer loan; however, there are factors that will get you approved for a loan such as the following:

  • Your credit score
  • Amount of down payment
  • Length of employment history with current employer
  • Annual income
  • Monthly debt obligations — Such as car payments and house payments

If there are any questionable items in one's credit history, it is not uncommon for them to send out a company representative to verify your employment status, income, and residence.

How can I get out of a loan agreement?

To get out of a loan agreement, you normally have to repay your loans within a fixed time. If you are unable to pay, the lender may give you another payment period.

You may also call the lender to explain that you can no longer pay, and ask for loan cancellation. However, there are consequences when you cancel your loan agreement.

Can I back out of a loan?

Yes, you can back out of a loan; however, there may be consequences by doing so, depending on the terms and conditions stipulated in your loan agreement.

Does a loan agreement have to be signed by both parties?

A loan agreement must be signed by all the parties involved to be legally valid.

What are the tips when using a consumer loan agreement?

  • You are obliged to follow the terms when applying for a consumer loan agreement.
  • Before filing a loan agreement, plan the best financial strategies to repay your loan to the lender.
  • Maintain a job or business to have a source of income to pay your loan.
  • Use the loan for its intended purpose. If it happens to be used for business, strategize wisely to grow your business.
  • A loan is a good investment for a business. However, buying things compulsively is not a good idea for loaning, hence a dead investment.
  • If you have extra earnings, save it for the next coming month(s) of paying the loan.
  • Having a co-borrower helps you pay the loan easily and on time.
  • Repaying your loan on time would prevent incurring additional interest and late fees.
  • Making a prepayment gives you the benefit of rebates and lower interest rates.
  • A prepayment allows you to have lower interest and can refinance you for a new loan.
  • Keep in mind the past due date of the agreement so you won’t be charged for any late fees or additional interest.
  • Make payments before the due to prevent interest charges.
  • If you have enough funds that are bearable for your future needs, save and use them wisely.
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