Loan agreements are contracts in which the terms of a loan are regulated. These generally relate to cash loans, but they may also be used for securities lending as well. A loan contract is usually a written document, but is sometimes an oral contract. Loan contracts are classified either by the lender or the facility. Loans categorized by lender are subdivided into either bilateral loans or syndicated loans. The categories by a facility are term loans and revolving loans.
California Civil Code – Contracts – Statute 1624 g states that a loan of over $100,000 must be a written document. Contracts where the cash loan is secured by real estate property may also require a written contract. Loan contracts should be looked over by an attorney. They are meant to legally bound the parties and a court of law can use them to acquire payment of the loan.
Some things that a loan contract should have are the following:
- The names of the people entering into the contract. Specify which is the creditor and which is the debtor.
- The principal amount of the loan. This should be written in numeric form.
- Record the interest rate of the loan. This should be the percentage paid per year.
- The terms for the loan. The length of the loan in months or years.
- The reason for taking out the loan, such as medical expenses, educational expenses, car loan, etc.
- A prepay clause can be added. This will indicate whether or not a prepay penalty will be incurred. This should be written as a monetary or a percentage value.
- The loan contract should be notarized. This contract should be signed and dated by both the creditor and the debtor.
They should be properly cared about to make sure that the California usury laws are followed. The usury in California is governed by Article 15 of the California state constitution and by state civil codes. Personal loans and loans for household purposes can have up to a ten percent interest rate. This is applied to the unpaid portion of the loan. Home loans or loans taken out for home improvement are not treated as personal or household loans. These loans can have a charge of an interest rate of either ten percent or five percent above the Federal Reserve Bank of San Francisco rate. The rate that is posted on the 25th day of the month is what is used.
Licensed real estate brokers may charge a higher rate as long as the loan is secured by real estate. Some other exceptions to the usury law include loans given by banks, credit unions, or finance companies. Credit cards, retail installment loans and revolving accounts are not counted as loans and the usury laws don’t apply. The California state attorney general has stated that credit cards have no limit as to what interest rates they charge even if the credit card was used for personal or household purposes.
If the debtor and creditor don’t have an agreement with an interest rate, in the state of California, there is a default rate of seven percent a year. Entering into a loan contract in California is a legally binding contract. An attorney should be consulted. The attorney can look over the contract and verify its legality and that California laws are followed properly.