Loan Agreements and the Importance on getting Legal Advice

Entering into any kind of loan agreement or arrangement is a major responsibility and can cause a lot of financial stress and damage if it is not dealt with in the appropriate manner. To better understand loan agreements, this article will delve into what they are, what to expect, and the importance of getting legal advice to protect your interests.


What is a Loan Agreement?

A loan agreement is a legally binding contract between a lender (party A) who provides funds to a borrower (party B). Its purpose is to specify the intentions of the parties involved, their obligations, and the duration of the agreement. The terms of the contract will differ depending on the type of loan and it should be in accordance with state and federal rules and guidelines. Once a loan agreement has been signed by both parties, the borrower and lender are under obligation to perform their duties under the contract. 

There are two key types of loans applicable in Australia.

The first is a secured loan, which allows the lender to recover payment using assets. They can take possession and sell them to reclaim any losses which have arisen from the default. Common examples of secured loans include mortgages and car loans. 

The second is an unsecured loan, meaning collateral is not used for security of payment. Examples would include student loans and or personal loans. These types of loans would typically attract a higher interest rate as they are very risky from a lender’s perspective (i.e. if the borrower defaults).   


When are Loan Agreements appropriate?

There are several instances where a loan agreement is relevant. These include:

  • Buying or improving property;
  • Starting or running a business;
  • Purchasing personal assets. 


Payment of Interest

It is very common for a borrower to be required to pay interest on a loan. The loan agreement should highlight what the interest rate is, the time frame on when it should be paid, and how to calculate it. Interest rates are different to each contract, as it is dependent on the purpose of the loan, the strength of the security, and the strength of the borrower. 

Typically, borrowers must pay default interest (which is higher than the normal interest rate) if they fail to pay within the specific time frame, however, this is not the only consequence. Depending on the terms of the loan, lenders are also entitled to charge recovery fees (such as their agent’s or solicitor’s fees). This reinforces the importance of making payments on time and understanding the terms of the agreement you are entering into. 


Why is it important to get legal advice?

Lending or borrowing large amounts of money should not be carried out without understanding the high risk that it entails. Both parties should be informed of their contractual obligations under the lender agreement (the loan), and if they are unaware, they should seek independent legal advice as to the terms and conditions of the loan agreement. 

At RCR Lawyers we highly recommend that you have your loan agreements reviewed by a qualified solicitor. Klevis Kllogjri and James Hatzopoulos have assisted several clients with loan agreements of different sizes, from straightforward loans to purchase property to private loans. Contact us at [email protected] Or 02 9307 8900 for an initial discussion if are considering entering into a loan agreement, whether you are proposing to lend money or borrow. 


The blog published by Rostron Carlyle Rojas is intended as general information only and is not legal advice on any subject matter. By viewing the blog posts, the reader understands there is no solicitor-client relationship between the reader and the blog published. The blog should not be used as a substitute for legal advice from a legal practitioner, and readers are urged to consult RCR on any legal queries concerning a specific situation.


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