Loan agreement – what to pay attention to the usual borrower?
The agreement on the provision of borrowed funds, which is concluded between the bank and its client, is considered the main document for each of them. After all, this agreement sets out all the conditions of the credit program, as well as everything related to the receipt and payment of the corresponding debt. Is it possible to terminate a loan agreement? What does this document consist of and what points to pay attention to? All this in this article.
Content of loan agreement
- The prologue. This section of the main document is called the “preamble” and it should always contain the data of the main participants in the transaction. In particular, F. I. O. is written here as the recipient of borrowed funds and the full name of the financial institution that issues them.
- The second is usually a section on the obligations of all parties to the agreement. It contains information that the bank must provide its loan product on the established conditions. It also states that the borrower is obliged to return the full amount of the money received in accordance with the terms of the loan program.
- The rights of the bank and the borrower. In this section, everything is stated that concerns the rights of each participant in the transaction of monetary borrowing. In particular, it is indicated in which cases the debtor can terminate the existing loan agreement, and the financial institution – to demand early repayment of the debt. This part should pay special attention.
- Information about the pledge. This item is in the loan agreement only in cases where cash is issued on bail. Here it is prescribed which property the borrower provides as the main, as well as secondary security. If, in addition to the collateral, there is also a guarantor of loan repayment, then the necessary data of the guarantor must be indicated.
- Full description of the loan. In this section, you can find out the exact name of the program in which the borrower participates, a certain type of loan product, and also what it is intended for.
- The procedure for granting borrowed funds. It contains information on the timing of the issuance of a cash loan and all possible ways of obtaining it. In particular, the bank can transfer money to the borrower’s account or simply issue it in cash.
- List of all documents. In the last part of the agreement, as a rule, the documents that the borrower provides during the loan process are listed.
How to terminate the contract?
Each of its participants, that is, both the borrower and the bank, can terminate the main document of a credit transaction. But there must be compelling reasons for this, namely, a rather serious violation of the terms of the agreement.
Attention! The borrower, for example, has the right to demand termination of the existing agreement in the event that a bank:
- increases the loan rate – raises the current rate, if it is not provided by the contract;
- changes any provisions of the main document;
- without justification applies penalties;
- gives cash not in full.
In turn, the bank may terminate the loan agreement in the following cases:
- debt is significantly past due;
- the borrower uses the funds received for purposes that do not meet the conditions of the program;
- sale of pledged property, in particular, sale;
- a significant reduction in the solvency of the debtor;
- constant violations of the terms of making payment on the loan.
These are the most common reasons why a financial institution has the right to demand early repayment of borrowed funds and, accordingly, termination of the contract. It should be noted that in the case when the borrower repays the loan before the deadline, the main document also expires. In addition, the agreement expires when the loan is refinanced, since it also pays the debt in advance.
How to terminate the main document
If the borrower wants to terminate the loan agreement and he has serious reasons for this, he needs to submit an application with the appropriate request to the bank with which this document is signed. In the case when the creditor agrees to fulfill the client’s request, the entire procedure for termination of the agreement takes place without any difficulties. However, most banks react negatively to such statements and try to keep the borrower in order to get all the profit from the product issued to him. In such a situation, to solve the problem, you need to go to court, which will determine who is right – the bank or the borrower. It should be noted that the second option is longer and more complex, but often you can terminate the agreement only in this way.
The most important points of the agreement
Before you take out a loan and sign the main document of such a transaction, you should carefully read its contents. There are no extra points in the agreement – everything matters, but there are sections that are considered to be the most important.
- The scheme by which debt must be repaid. There are only two types of payments – annuity and differentiated. If the types of payments are specified in the parameters of a cash loan, for example, that it can be paid only under an annuity scheme, then it will not be possible to change it after the conclusion of the contract. Banks agree to restructure the loan only in extreme cases when the debtor is in a difficult financial situation.
- Everything related to the cost of the credit product. The amount of overpayment on a loan depends mainly on the rate at which it is issued. But at the same time, a certain type of interest rate has a value – constant or floating. When the borrower receives cash at a variable rate, a significant increase in the cost of the loan can wait for it, since the bank has the right to increase the amount of the rate during the term of the contract.
- For which the bank may apply penalties. Many borrowers often miss this part of the contract, and huge fines for minor breaches are a complete surprise to them. The debtor must know in which cases the financial institution has the right to apply certain interventions to repay the loan correctly.