The loan agreement specifies how much, for how long and on what terms the bank will borrow money from the borrower. Regardless of whether you want to use a mortgage, cash or revolving loan, it is important that you understand every part of the loan agreement. Check what you need to know before you sign such a document and which elements are particularly important.
Credit agreement – basic information
The loan agreement may be concluded for a period of several months or even several dozen years. No matter how long it lasts and what financial product it deals with, you need to carefully analyze all of its records. When you sign a document that is unfavorable for you, you are exposed to excessive costs, and you may even stretch your home budget too much.
Therefore, if you have any doubts about the content of the contract, you should always ask their bank consultant for clarification. Nevertheless, you will find the answer to most of your potential questions in the guide below. Although we focus mainly on the mortgage, reading it will help you become an aware borrower. It is important to be able to use various credit products in a cost-effective and safe way.
Credit agreement – definition and characteristics
Mortgage, cash, car, revolving, consolidation, investment or credit card – individual of these instruments may differ, for example, in the way the funds are used, the minimum and maximum amount of financing, the repayment mechanism and deadline, or the application procedure. Due to the fact that different types of banking products are different, the related contracts also take on different forms.
On the other hand, for each product, the general definition of a loan agreement is included in the Banking Act:
Through the loan agreement, the bank undertakes to make available to the borrower for the period of time specified in the agreement the amount of cash intended for a specified purpose, and the borrower undertakes to use it under the conditions specified in the agreement, return the amount of the loan used together with interest on the specified repayment dates and payment of commission on the loan granted.
Be aware that each lender individually constructs the terms of the loan agreement (taking into account the applicable laws of banks). Because it also determines the amount of interest and the commission, if any, remember to carefully compare the offers in terms of costs.
While the contracts differ in terms of terms, their design is often similar and divided into two parts. The first part is general and applies to all borrowers, while the second part already concerns a specific customer. The first usually regulates such issues as: the purpose and method of spending, the principles of calculating interest and other costs, as well as the rights and obligations of the parties to the contract – the borrower and the lender.
Loan agreement and problems with loan repayment
The loan agreement also regulates issues related to difficulties in settling liabilities. If you decide that the bank will automatically take funds from your account to repay the loan, you will be obliged to ensure the appropriate amount on your account. If there is not enough money on the account on the day of payment, the bank may postpone the installment to the next month and start accruing overdue interest. In addition, it will record a delay in your credit history and even deprive you of the opportunity to use the promotional margin.
If you are late repaying your loan installments, various steps can be taken. Their choice depends on the bank’s policy or the length of the delay and the amount it covers. In this case, the bank may:
- calculate penalty interest on each late installment;
- inform you of your failure to pay;
- send a written request for repayment to you and any guarantors of your loan. Sending such a reminder involves a fee that can be charged to your invoice without your instruction;
- terminate the loan agreement;
- refer a case of late payment to court and bailiff.
The above list is reason enough to honestly fulfill your obligation to pay the loan installments. However, remember that in case of any financial problems you can count on the lender’s understanding. The most important thing is to let them know about them early enough.