Loans are a form of financial aid that have to repaid with interest. Banks, building societies, private and online lenders offer loans to those in need of financial help. An agreement is signed in between the borrower and the creditor, whereby each of them agree to the terms and conditions of the loans deal. Loans can be either secured or unsecured. The former requires the borrower to pledge his home as security whereas unsecured personal loans need not be supported by any asset.
The loan agreement of both secured and unsecured personal loans contain the following details.
1. The Loans Tenure- Loan tenure is the loan period or the repayment period during which the borrower is required to repay the loan as equated monthly installments (EMI). The loan tenure for secured loans is longer than unsecured personal loans.
2. Details about the termination of the loans- This contains clauses regarding what charges and penalties(if any) will be borrower be required to pay to the lender if he decides to repay the loan before its maturity date.
3. The true cost of the loan- The loan agreement contains all vital details like the nominal interest rate, the brokerage charges, the APR, the annual charges and others. This helps the borrower to know that how much he will actually be paying for the loan.
The borrower should read each and every detail mentioned in the loan agreement properly before finalizing the secured or an unsecured personal loan. Any objectionable clause should be sorted out beforehand with the help of a mutual decision taken by the lender and the borrower.
Especially in the case of secured loans, the borrower should thoroughly check the loan agreement as the home of the borrower is at risk. Even in the case of unsecured loans, borrower should take every possible precaution to prevent himself from falling in to bad loan deals.