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Types of loan agreements
A loan agreement is usually for money. That is the most common type of loan agreement – a lender lends a borrower a certain amount of money for a certain amount of time. The borrower then pays it back with interest and according to certain terms.
But another type of loan agreement is also very commonly used in day-to-day situations and those are property loan agreements. These can be very all kinds of properties, but very common ones are vehicles (when you rent a car for example) or artworks (when you lend out an artwork for an exhibition for example).
Other types of loan agreements are:
- inter-company loan agreements : in this case the type of loan agreement differentiates based on the lender and borrower being different companies, rather than a different “thing” being lent
- employee loan agreements: used when an employee lends something from the company
- equipment loan agreements: when equipment is being lent out; You’ll typically find this when you borrow something from a hardware store or rent a forklift or some other equipment.
What is in a loan agreement
A loan agreement’s contents depend on the type of thing that’s being lent out. As described in the previous paragraph – this can be money (in most cases) or a different property.
In case of property loan agreements you’ll typically find the following clauses in the document:
- return in like condition clause: describes that the item should be returned in the same way as it was borrowed
- repair clause: what will happen in case of needed repair
- loss: describes what happens if an item is lost
- other costs: this can pertain to all kinds of costs, such costs of preparation, handling, transport to and from the lender
- liability: who is liable during the use of the item and for what
- use case: describes for what kind of uses the item can be used
When the loan agreement describes a debt in the form of money, it will contain clauses such as:
- duration: how long the loan is for / what (maturity) date the loan ends on
- interest rate: what kind of interest rate is applied and how it is calculated
- (re)payment schedule: this can take all kinds of forms, such as:
- single payment
- regular payments
- security / collateral: what does the debtor put in as collateral for the loan
- insolvency: describes the measures in case the debtor becomes insolvent
- breach of terms: what happens in case the terms are breached
- witnesses: describes the witnesses that are present and their signatures
Difference between loan agreement and promissory note
A loan agreement is not the same as a promissory note. A loan agreement is an agreement between two parties, where both parties (the lender as well as the borrower) sign the agreement. A promissory note is a written promise that money is owed by a borrower. It’s only signed by the borrower and is often saleable.
Because a promissory note is used in certain situations quite a lot (mortgage situations / cash advance for companies etc), the layout and contents will more or less be the same and relatively standard.
A loan agreement on the other hand, will often be for a more specific situation and therefore contain more clauses. These clauses can also be very specific for the same reason. Each lender and borrower is different after all.
Exceptio non numeratae pecuniae
The clause “Exceptio non numeratae pecuniae” is something you’ll find quite often in loan agreements. It is Latin and literally translates to “not having counted the money” (see Wikipedia).
This clause says that the amount was never paid to the borrower, even though the loan agreement was signed. It means that the burden of proof is on the lender. The lender should therefore be able to prove that the borrower indeed received the money that is in the loan agreement.