Loan agreement and its some issues
According to the loan agreement, the Creditor undertakes to transfer money or other property defined by the nature of property to the Borrower, and the borrower undertakes to return money or property of the same type, quality, and quantity as the transferred property at a time which is compromised by two parties. Form of loan agreement The loan agreement can be concluded verbally or in writing. Signing the written loan agreement has the following significance. 1. Interest and undue loss can be charged. The law stipulates the interest and undue loss cannot be charged on oral contracts. 2. Verification value. In the event of a dispute arising from an oral loan agreement, it is common to have difficulties in proving the amount of money or property was given and received between parties. By making a loan agreement in writing, you have a proof of facts such as loan amount, conditions, repayment period, loan interest.
Loan interest A loan agreement to charge interest must be concluded in writing, and if the agreement is not concluded in writing, the Creditor does not have the right to receive interest from the Borrower. The interest rate of the loan agreement shall be determined by mutual agreement between the parties. If the interest rate is too high and clearly harms borrower's rights and legal interests, the Borrower can apply to the court to reduce the interest rate. In this case, the Borrower needs to prove with facts that the loan interest is clearly harming his rights and legal interests. Calculation of undue loss related to failure to fulfill obligation The parties may agree to calculate undue loss if they do not fulfill their obligations under the loan agreement, and in this case, the contract must be signed in writing. Also, the maximum amount of the undue loss is set at 0.5% of the amount of the unfulfilled obligation. Documentation In the case of giving the loan to Borrower in cash, and in case of repayment in cash, making and signing the "Receipt of Money" will prevent you from risks and disputes arising from the loan agreement and will be the proof as well. If you are going to enter into a simple loan agreement with an individual, avoid common risks and complications related to loan agreements by making a written loan contract, including mandatory items in the contract, and paying attention to the above-mentioned points. This information has been prepared for the purpose of providing information to clients and interested parties, and is not considered legal advice provided within the framework of legal professional activities of Tuv Consulting Advocates LLP. By using above information and recommendations, you will not be bound by rights or obligations to our firm, and you should meet a lawyer before taking any action based on this information.