When a bank, loan firm or financial company gives a loan to the consumer or an individual, the consumer has to sign on the legal agreement with the company and this agreement serves as the proof or paper of guaranty for the consumer that if he doesn’t repay his debt/loan, he will face consequences explained on the agreement and the consumer agrees to the terms and conditions by signing the agreement. This agreement is known as the consumer loan agreement and it is very common in credit card applications and processes.
Brief Description of Consumer Loan Agreement:
Usually when we talk about the loan or debt, people think that business loan and consumer loan are the same kind and there is no difference where in reality, they both are very different. For example, business loans are huge in amount like millions whereas the consumer loans are not that valuable or expensive i.e. $10,000 or $100,000 in most cases. Also when it comes to business loan, adding a guarantor is essential in the process so that if the company refuses to pay back the debt, the financial firm or bank can claim the loan from the guarantor where on the other hand, there is no need of a guarantor in getting consumer loan. Business loans are required to invest more money in the company where the consumer loans are more for the casual or common uses i.e. real estate purchase, automobile purchase, education or medical. Usually when we talk about the consumer loan, it refers to the credit card loan that banks and other financial companies grant to the individuals.
In this process, the bank only requires their salary figure in order to grant a specific amount of credit or loan to the individual so that he can easily pay it back where on the other hand, when it comes to business loans, the lender or debtor has to pledge some property or shares to the bank as guarantee to return the loan. The official document or contract that is signed by the bank and the consumer for getting this loan is known as the consumer loan agreement. This agreement typically includes the information about the debtor and creditor, amount of loan and interest rate, monthly installments and duration to pay back the loan, validation, limitations and termination clauses of the agreement and signature of both parties. It also includes the terms for extending the time period or validation of the agreement if the consumer is unable to pay back the loan in time.
Here is preview of a Free Sample Consumer Loan Agreement Template created using MS Word,
Key Elements to add in the Consumer Loan Agreement:
- Name of the individual/consumer
- Name of the financial company/bank/creditor
- Details of the loan
- Specifications and particulars of the loan
- Interest rate on the loan
- Duration to return or repay the loan
- Particulars about the consumer i.e. employment, income, expenses etc
- Terms and conditions of then agreement
- Mutually agreed clauses of the agreement
- Rights and obligations of both parties
- Termination of the agreement
- Validation and limitations of the agreement
- Results of violation of the agreement
- Signature of both parties