Why is Moneylending Agreements Important

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.