Terms of the loan agreement: essential and additional

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

In the article, consider the essential terms of the loan agreement. The content of this document is a set of obligations and rights of the parties. In contrast to the loan agreement, here the obligations lie on both sides.

This is an agreement between a credit institution (bank) and an individual (legal) person - the borrower to provide funds in the amount previously agreed by the parties. However, they must be returned by a certain date with interest. This agreement must be executed only in writing, otherwise the document will not have any legal force. Let's look at the terms of the loan agreement, essential and additional, below.

The difference between a loan and a loan

In the first case, only specialized organizations (banks) can issue funds, and in the second case, any individual or legal entity (microfinance organization, for example). Loan money requiredreturned with interest, but the loan may not provide for them. The first can be issued only in currency, and the second can be both in monetary and in real terms. Before talking about the essential terms of the loan agreement, let's describe the general rules.

For all borrowers

Information on the general terms and conditions of contracts of credit institutions should be publicly available by law. Once developed by a bank, it is then used repeatedly.

This includes:

• Currency with which the credit institution can work.
• Requirements for borrowers to qualify for the program.
• Time limit for consideration of the application.
• Types of loan programs offered by the bank.
• Amounts that can be received and the corresponding interest.
• Possible ways to provide the indicated amounts.
• Pen alties that are provided for violation of the terms of the contract.

The annotation to the program must contain a list of general conditions, which is also enshrined in law. Each client can familiarize himself with this information without visiting the bank.

Essential terms of the loan agreement

Although the law regulates the free will of the parties when concluding any contract, there are certain conditions without which it will be considered not concluded. They are called essential and must be contained in anyloan agreement. Before signing a document, the borrower, first of all, needs to pay attention to them, since this determines the future fate of the transaction.

With the essential terms of the loan agreement, unlike the general ones, the client gets acquainted already when signing the documents. They are developed separately for each, therefore they are also called individual. There should be no contradictions between general and essential conditions, otherwise the latter will take precedence. Legislatively, the parties agree on their own, but in practice, the bank provides a ready-made agreement, and it’s up to you to agree to it or not. Essential conditions, in turn, are major and minor.

Main essential terms

They have priority when signing a loan agreement. Always placed on the title page, highlighted in bold. The essential terms of the loan agreement are:

• The currency in which this loan will be disbursed.
• Full cost of credit, including all payments that the client must make, their amount and repayment terms.
• Annual interest and, if any, lump sum payments to the bank.
• Interest rate. Important: in some cases, its size may change due to an increase or decrease in the refinancing rate.
• Term of validity and fulfillment of obligations by the parties (these values usually coincide).

Amounts are written innumerical and in capital form. What else do the essential terms of a bank loan agreement imply?

The total cost of the loan is made up of the amount, interest rate, terms, and other bank services in the aggregate. If the interest is not fixed for the entire loan term, then all possible indicators that will be applied after the loan is issued are mandatory written on the title page. The loan currency is not subject to change during the entire period of the agreement.

Minor conditions

Although they are called secondary, they are no less important. They just attract the attention of borrowers in the second place.

The secondary essential terms of the loan agreement include:

• Payment schedule (indicates the exact number of payments for the entire period, frequency, size).
• Pen alties (their rate is indicated).
• The ways in which obligations can be fulfilled. First, free (no commission) and then paid methods are prescribed (the full amount of payments must be indicated).
• Additional agreements that are concluded along with the main contract.
• Scheme for the use of funds (in the case when a consumer loan is issued as a target, that is, it involves the allocation of funds for certain purposes).
• Rules and procedure for notifying a borrower of a credit institution about a change in contact details.
• The procedure for the assignment of the right to claim under the contract (the creditor indicates that he has the right to transferto third parties of the right to claim for the collection of overdue debts, and the borrower voluntarily agrees to this).
• If there are additional paid services to be provided by the lender, with a name and an indication of the exact price.

The term does not apply to the essential terms of this document. If it was not specified in the agreement, then the loan must be returned by the client within thirty days from the date the creditor submits a request for this, unless the document provides otherwise.

Unilateral change

Also, the bank must indicate the possibility of changing the essential terms of the loan agreement unilaterally. For example, he, without the consent of the client, has the right to take any actions that improve the financial situation of the borrower (for example, reduce the interest rate, reduce pen alties, etc.). Such changes are impossible without the introduction of an appropriate clause in the text of the agreement.

The agreement may contain other essential terms as agreed between the parties. If necessary, the lender is obliged to explain to the borrower each clause of the agreement. The number and frequency of such consultations after the signing of the document is not limited in any way. We continue to consider the essential terms and content of the loan agreement.

Other items

Conditions, the inclusion of which is not allowed in the contract, are prescribed by law, and their presence leads to the invalidity of the entire document:

• It is forbidden to charge an additional amount of money to ensure the fulfillment of obligations. Only movable and immovable objects can be accepted as a guarantee.
• You can not take a commission for issuing loan funds.
• It is also forbidden to provide in the contract such a condition, according to which the bank will provide a new loan in order to repay possible overdue debts, without concluding a new agreement.
• The Bank is not en titled to oblige the borrower to use the paid services of third parties to fulfill its obligations under the document. For example, a lender cannot require a client to make payments through another company if this service is paid.

Additional terms

Additional terms of the loan agreement are:

• Rights and obligations of the parties.
• Securing the loan.
• Property liability of the parties arising from breach of obligations.
• Grounds and procedure for terminating and amending the loan agreement.
• Dispute resolution method.

Let's talk about some of the nuances of concluding a loan agreement.

Pitfalls of lending

The borrower should always remember that payments must be made strictly on time. Moreover, the recommended payment date when transferring money through a third-party bank is usually indicated in the contract. In case of late payment, the company accrues interest, which must also be paid. At first, the amount will be small, and the client may not know about it. Butthen it begins to grow rapidly, and a decent debt is formed. The bank, most likely, will notify the client after the overpayment becomes significant. Therefore, it may turn out that a person regularly paid the loan, and at the end of the loan repayment has a certain debt to the organization.

The contract indicates the need to notify the financial institution of a change of residence, passport data, etc. If this condition is not met, the client may be required to return the entire loan amount. Of course, few banks do this, but it's still not worth the risk. A contract is a contract.

Indication of false information about guarantors can be considered by the bank as fraud, and it is already punishable in court. This, too, must be remembered. That is why it is beneficial for the client to read the conditions prescribed in the document as carefully as possible, even before he signs it. We examined the essential terms of the loan agreement under the Civil Code of the Russian Federation. You should always focus on them.