Understanding Your Personal Loan Contract: Tips to Help You
There are some important considerations when signing a contract for a loan, even a small loan. Here are some things to consider when signing a loan. So, let’s get started.
What Is a Loan Contract?
A loan contract is a legally binding agreement between the borrower (you) and your lender if you are approved for a loan. The purpose of the contract is to provide clear statements of the responsibilities of each party to the loan. The contract also helps ensure that the contract meets all legal requirements based upon both national and state regulations. All loan contracts must clearly state the precise amount of the loan and the fees associated with the loan.
How Important Is a Loan Contract?
It is critical to your understanding of the costs and repayment terms you may agree to. It outlines your loan amount, interest rates, repayment plan, penalties, fees, and all other terms. The loan contract proves that what you borrowed is a loan. You, the borrower, must repay according to the terms and conditions of your contract if you agree to and sign the contract.
Your loan contract also protects both you (the borrower) and the lender if there’s a dispute and you end up in court.
What Should I look for in a Loan Contract?
Most people do not read their loan contract and are then surprised if there is an extra fee or cost, which is already detailed in the contract. So, READ YOUR CONTRACT. Do not feel rushed, read every page and ask questions about anything you do not understand or if you need clarification on any point in the contract.
It is solely your decision to accept any loan from any lender, and you are never obligated to sign a contract when a loan is offered to you. If you know someone who is more knowledgeable about contracts, you can ask them to help you review your contract.
Loan Contract Parts
There are usually several parts to your loan contract. Some are just disclaimers or legalese, but there are some important ones to review.
- Financial Terms:
Your contract should provide a breakdown of all expenses and fees associated with your loan. It should also outline the set fees of your loan if it’s a payday loan, as well the exact amount of all other potential charges/fees that you could be subject to. For example, if you extend your loan, you will likely be subject to additional fees.
- Loan Repayment Terms:
It’s vital for you to understand when you must pay back your loan. For payday loans, it usually is your next paycheck. However, if you have an installment loan, you may have a monthly payment. In either case, you must pay on time or you could be subject to additional fees as well as collection activities. Read this section carefully as you will assume these responsibilities if you accept the loan.
Double Check Your Information
Go through your loan agreement more than once to confirm that your personal information is correct. Also, review your terms again as you may have missed something if you went through the document too quickly.
Never Feel Pressured
Even if you really need the loan, never feel pressured to accept a loan offer. With payday loans, they occur very quickly. You submit your loan request, and if approved, you receive a call in just a few minutes to go over your loan terms (your loan contract). So, the process is fast and easy but may also leave you confused or unsure. Ask your lender as many questions as you want before agreeing to the loan.
Always Keep a Copy of the Contract
For your own records, always request a copy of your loan contract. This is for your protection should you ever have a dispute with your lender.
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