A Loan Agreement, also known as a term loan, demand loan, or a loan contract, is a contract that documents a financial agreement between two parties, where one is the lender and the other is the borrower.

This contract specifies the amount of the loan, any interest charges, the repayment plan, and payment dates. A written contract gives both the borrower and lender a clear outline of the terms of the loan.

Typically, there are three types of term loans:

• Business to business loan agreement: This is when one business, such as a bank, lends money to another business or startup.
• Business to individual loan agreement: This is when a business provides a loan to an individual, such as a real estate lender providing a mortgage to a homebuyer.
• Individual to individual loan agreement: This is when one person privately lends money to another, such as a family member or friend.

Loan agreements generally include information about:

• The location. People usually choose the lender's location for the Loan Agreement, but if the agreement is for the purchase of assets, then the parties might choose to list the location of the assets instead.
• The lender and borrower. These details include name, address, and whether the lender or borrower is an individual or a corporation. You may also add a co-signer who agrees to pay the debt if the borrower defaults on the loan.
• The loan amount. The amount of money being lent to the borrower is the loan amount.
• Interest and late fees. If the lender charges interest, they may specify the percentage of interest and that it's compounded yearly. The lender may also penalize overdue payments by charging late fees or increasing the interest rate.
• Repayment method. The borrower may repay the loan in a single payment or regular payments. The agreement should outline the repayment schedule, when the final amount is due, and if the borrower can repay the loan early or in lump sums.
• Collateral and insurance. The borrower may secure the loan with collateral such as a vehicle, equipment, or jewellery. In this case, the lender may seize the collateral if the borrower cannot repay the full loan amount. The lender may also require the borrower to obtain insurance if using the loan to buy a vehicle.

LawDepot's Loan Agreement template allows you to choose from the following methods of repayment:

• Single repayment: The borrower repays the entire loan amount at once (either by a specific date or upon notice to repay).
• Regular payments: The borrower repays the loan in weekly, monthly, or yearly instalments.
• Other: You may specify a non-traditional method of payment, such as allowing the borrower to make payments as they are able.
• Early repayment: In addition to the specified payment schedule, the borrower may make lump sum payments at any time in order to repay the loan early.
• Interest: The lender may charge interest at a certain percentage rate that compounds yearly. If the borrower fails to make a payment on time, the lender may increase the rate of interest or charge a late fee.

Interest is a way for the lender to charge money on the loan and compensate for the risk involved with the transaction.

You may choose to begin charging interest or increase the interest rate if the borrower fails to make a payment on time. The increased interest provides you with additional compensation for the borrower's failure to pay as promised and the trouble of having to enforce the Loan Agreement.

If the borrower dies before paying off the loan, authorities will use their assets to pay the remainder of the debt. If there is a co-signer, the responsibility for the debt falls to them.

If the lender dies before receiving the complete repayment, the borrower owes to the lender’s estate. In this case, the beneficiaries of the lender’s estate will collect the remainder of the debt.

If the loan is for a significant amount, it’s important that you update your Last Will to specify how you want to deal with the outstanding loan upon your death.