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A Loan agreement is a binding contract between two or more parties to formalize a loan process. There are many types of loan agreements such as simple promissory notes between friends and family members to more detailed contracts like mortgages, auto loans and credit card loans.

A simple loan agreements can be little more than short letters specifying how long a borrower has to pay back money and what interest might be accrued on the principal. Agreements such as mortgages, are elaborate documents that allow lenders to repossess the borrower’s property if the loan isn’t repaid as agreed.

A Loan agreement in general includes covenants, value of collateral involved, guarantees, interest rate terms and the duration over which it must be repaid. In case of default, terms of collection of the outstanding debt should clearly specify the costs involved in collecting the debt.

• It protects the right of the party granting loan to the other party.
• It includes the duration of payment and interest rate applicable thereby clearly specifying the terms of the Agreement and avoiding any doubts.
• It is instrumental in preventing occurrence of future conflicts.
• It facilitates trust between parties.
• It acts as a primary evidence in proving that certain amount was given as loan to the borrower.

A Loan agreement is a binding contracts between two or more parties to formalize a loan process.

It protects the right of the party granting loan to the other party and could act as a primary evidence in proving that certain amount was given as loan to the borrower.

Yes, it is essential if a business is granting loan to another party.

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