Loan Agreement – a formal document that provides evidence that a loan exists. A loan agreement states the interest rate, the repayment period, the collateral (if any) and any special terms. The main purpose of a loan contract is to define what the parties involved are agreeing to, what responsibilities each party has and for how long the agreement will last. A loan agreement should comply with state and federal regulations. This protects both lender and borrower, should either side fail to honor the agreement.
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