Loan Agreement: The Content for its Validity
March 23, 2019
The essential content for its validity. The loan contract must be drawn up in compliance with precise legal provisions and must contain specific indications.
The loan contract regulates the disbursement, reimbursement and penalties in case of violation. It is therefore a fundamental document for the protection of the lender and the beneficiary of the credit, and must be read carefully. On the basis of the rules governing bank transparency (also applicable to financial companies), the loan contract must obligatorily meet certain requirements under penalty of nullity. In addition to the indication of the subject providing the loan, the following must be identified in the contract: the beneficiary of the loan; the amount of the loaned capital and the terms of its repayment (this is the so-called amortization plan for the loan); any guarantees given (personal or real); penalties for early repayment and for the recovery of installments which, at the end of the loan, have not yet been repaid.
What is indicated to you
Furthermore, the contract must specify : default interest which will increase the installments paid late; the interest rate applied; the spread; the TAN ; the APR ; the other cost items not included in the latter indicator (for example, registration tax on the contract and mandatory insurance required by the grantor of the credit). The loan contract must be drawn up whether it is a loan (finalized or not) and for the granting of consumer credit. In the case of finalized financing, the loan contract must also contain an indication of the goods or services that will be purchased, and the disbursement of capital does not take place on the account of the beneficiary but on that of the company that sells those specific goods or services. In such cases, it is necessary to pay attention not so much to the contract but to its possible attachments that integrate the content.
In fact, they may contain invalid clauses, such as that which relieves the bank or the financial company from any liability in the event of failure to deliver the goods or failure to provide the service by the company indicated in the loan agreement. The signing of such an indemnity clause causes the burden of referring against the defaulting debtor to fall entirely on the loan beneficiary to obtain what was agreed. It should be borne in mind that no cost can be charged to the loan applicant unless specifically indicated in the relevant contract, and this applies to each item of expense, from annual items for the counting of interests and the liquidation of duties, to charges for amortization and for ancillary services. Finally, the loan agreement must also indicate the hypotheses for its termination, as well as the procedures for out-of-court settlement of any disputes between the counterparties.