Why is Moneylending Agreements Important

Whatever purpose your money lending application serves, one of the most important thing that you need to take account before grabbing a pen is reviewing the money lending agreement. This is essential in creating trust and transparency among parties, that is the lender and borrower, and as a safeguard as well to their respective interest.


So what is a money lending agreement and why is this important?


A money lending agreement is defined as a credit agreement which includes terms regarding defaults, covenants and representations and warranties. In layman’s term, this is where you put into writing what has been agreed and negotiated as well as grounding rules between money lender and borrower. In a case of breach, the moneylending agreement protects the right and interest of the offended party.


Since the moneylender is the one who drafts the agreement, they are obliged to follow guidelines under certain codes or applicable laws to avoid taking advantage or gaining at the borrower’s expense. With this at hand, four basic elements should be present in the money lending agreement. These are the following:


  1. Names and addresses of all parties to the agreement. If the money lender is requiring a guarantor or co-maker to the loan, the details should be furnished as well.
  2. Figures showing the total amount lent, the rate of interest, the total amount payable plus any collection charges that may apply. If along the way the money lender asks for additional fees not stipulated in the agreement, the borrower, by all means, is not obliged to take action.
  3. Signatures of all parties to the agreement, that is, the money lender, the borrower, any witness or co-maker to the loan.
  4. Necessary terms and agreements that apply to the loan. This is a tricky part. Be sure to read and understand everything that was written under this section.


Though it is the duty of the money lender to keep a record of each money lending agreement, the borrower is always allowed to secure a copy of his own. Money lending is beneficial to both the lender and the borrower. Loan agreements exist to ensure that all parties are getting an equal advantage and not otherwise.

What is Money Lending?


Moneylenders do not function like credit union per se. They are individuals or companies from a list of licensed moneylenders whose main business function is to lend money. But like other business entities, they are required as well to hold a license to trade in money lending to protect customers welfare a well.


So what makes money lending practicable or even better than any credit institution?


Money lending does not only lend immediate cash but supplies goods or services too which will be repaid at a high level of interest over a short period of time. This is the reason why we are not associating the money lending business with banks, building societies, insurance companies and credit unions.



There are several ways on how repayment is made in money lending. Unlink other types of loan in which monthly or bi-monthly payments are done by borrowers, money lenders collect loan payments in cash each week and includes collection charge for this service. Because of this, most borrowers opt to go to lender’s premises and make payment to avoid the collection charge. Direct debit can also be a method used for repayment purposes.


Like any other term agreements, collection charges should already be outlined in the document that is why it is very important for the borrower to read the content of it before signing. An agent might be sent as well by the money lender to collect repayments from customers, in which a written authorization letter from the latter should be presented. Moreover, the agent is only tasked to collect repayments and cannot initiate new loans as this needs a new or revised term agreement drafted by the money lender.


As for the customer’s protection as well, the amount they need to pay back on their existing loan stays the same no matter how long this might take to get fully-paid. Laws stipulate that money lenders are not allowed to charge any extra interest or charges over and above what they are licensed to charge and what they have agreed with the borrower as well to charge at the start of the loan.


If you are experiencing difficulty in paying off a loan, you should contact your money lender as soon as you can and be sure to always read and review all terms of agreements first before placing your signature on that dotted line.

What is Credit?

Consumers nowadays use credit to buy almost everything, including food, clothing and transportation. However, many people struggle to control their use of credit and get overwhelmed by piles of bills. This oftentimes leads people from running out of cash and asking for temporary help from different credit institution or small time money lending entities.


But what really is credit? How is this affecting today’s millennium compared to the previous generation?


Credit as generally defined means receiving a thing of value now and promising to pay for it at some future time, often with a finance charge or interest added by the lender. In a more technical term, credit also refers to the creditworthiness or credit history of an individual or company. For example, a person may say, “She has great credit so he is never anxious about the bank rejecting his personal loan application.”


There are different types of consumer loans that are becoming popular. These are personal, auto, payday and student loans which are often sourced out from different banks, credit unions and other people that lend money. Though regardless of type, every loan, especially the governing terms and conditions for repayment, is governed by applicable laws to protect consumers from unacceptable practices like excessive interest rates. In addition to this, loan length and default terms should be clearly detailed to avoid confusion between lender and borrower.


So how are today’s millennia affected with the availability and easy access of applying for loan or credit?


With the most recent research, young people are more likely to fund key life milestones with credit than their parents. That is, millennials are becoming more positive to hit their dreams and ambition earlier than their parents’ generation because of financial resources already available via credit or loan application. This kind of action is not a bad thing as long as they manage their credit responsibility. Access to clear financial education is one way of doing this, making sure they know their way out and act smart so they won’t be buried with debt at an early age and live their life the way they want it.

What are Different Types Consumer Credit and Loans?

Consumer credit has two basic categories which are Open-End and Closed-End credit. The former, or also known as revolving credit, can be used several times for purchases that should be paid back monthly though paying in full is not required. One of the most common forms of revolving credit is a credit card. Meanwhile, closed-end credit is used to finance a specific purpose for a specific period of time. Commonly known as for an installment loan, consumers are required to follow a regular payment schedule that includes interest charges until the principal loan has been paid off. Examples of closed-end credit include car loans, appliance loans, personal and payday loan.


A personal loan is an example of a closed-end credit that can be used for any kind of purpose which makes it an attractive option for people with outstanding debts, such as a credit card debt. Consolidated Loan as well is another kind which pays off all or several of your outstanding debts, like a credit card debt. This is to simplify finances by means of paying fewer monthly payments and lower interest rates. There also exists a kind of closed-end credit that is tied to the borrower’s property like an auto loan. Banks help you afford a vehicle but you risk losing the car if you miss payments. Lastly, a payday loan is designed to bridge the gap from one paycheck to the next but is usually short-term and has a high-interest rate. This kind of credit is usually discouraged but applicable laws are always in the favor of consumers to ensure protection against excessive interest rate imposed by some lenders or credit institution.


On the other hand, loans are not the only form of credit. Products or services provided by a supplier to an individual but does not require an immediate payment that can also be a form of credit.


At times when you ran out of cash and decides to borrow money, keep in mind that you need to understand the terms and agreement fully. Know what type of loan you are applying and whether it is tied to any of your belongings or can affect your credit score.