You’re living in an age when terms and conditions are a dime a dozen. These legal documents pop up with nearly every task you want to do online — from visiting a website to downloading an app.
Most of us don’t pay too much attention to this fine print — a Deloitte survey shows a whopping91%of people click “I Agree” without reading a single word. And if you navigate the Internet with similar blinders, you can easily overlook the importance of any legal document.
But some contracts, like your loan agreement, deserve your undivided attention. Keep scrolling to find out why and what, in particular, you need to see before you sign across the dotted line.
What is a Loan Agreement?
Your loan agreement is a legal document that spells out the rules of borrowing. It defines the financing your lender plans on extending you, like the size of your loan and the rates they apply. It also identifies your responsibilities as a borrower, like when you must repay what you owe.
With an agreement in place, your lender can’t change the goalposts on you. Once your rates and terms are printed and signed, they can’t tweak rates or terms without your explicit consent.
When shopping around for a loan online, make sure your lender treats agreements like Fora. The underwriting team at Fora uses plain language in all their contracts, so you can understand your rights and responsibilities without needing a lawyer on hand.
Not all lenders follow this easy-reading policy. Some might fall back on overly litigious language to make a contract sound more official. It’s also easier to sneak hidden fees into your agreement when using this complicated language, so watch out!
3 Things to Look for in Your Next Agreement?
While the style of writing can reveal a lot about your lender, it doesn’t trump substance. You need to make sure the following details are present in your next agreement.
1. APR
Investopedia defines APR—the annual percentage rate—in the following terms:
“APR is expressed as a percentage that represents the actual yearly costs of funds over the term of a loan”.
In plain language, APR tells you the true cost of borrowing. It includes the star of the show, the interest rate, plus other key players, including any fees or additional costs applied to your lender.
Since APR factors all your costs under one percentage, it’s an easy shorthand for comparing loans and lines of credit.
2. Repayment Schedule
The cost of borrowing is only one way to ensure you can afford your loan. You also have to consider the timing of your payments. Even a rock-bottom rate can be hard to afford if your lender expects you to pay your entire loan back in one lump sum.
The good news is that most legitimate lenders let you pay back what you owe over multiple installments. But you should always double-check with your budget that you can afford when these payments will come out of your account.
3. Payment Policies
What happens if you want to pay off your loan faster than the date stated in your agreement? What if you miss a payment?
Your agreement should answer these questions in detail. After all, you might run into a windfall that lets you sink more funds into your debt. You need to make sure your lender allows you to repay what you owe before the end of the term. You also need to know the penalties that apply if you can’t make a payment.
Bottom Line:
Your loan agreement contains critical details about your prospective loan that you can’t ignore.
