Unlike commercial or automobile loans, whose terms dictate the use of funds, personal funds can be used by the borrower for any purpose. Interest is a way for the lender to calculate money on the loan and offset the risk associated with the transaction. A Parent Plus loan, also known as “Direct PLUS,” is a federal student loan that is received by the parents of a child who needs financial assistance for the school. The parent must have a healthy credit rating to obtain this loan. It offers a fixed interest rate and flexible loan terms, but this type of loan has a higher interest rate than a direct loan. As a general rule, parents would only benefit from this loan in order to minimize the amount of student debt for their child. The agreement does not provide for interest on the loan. You will find such an agreement under private loan contract (with interest). Because private loans are more flexible and not tied to a specific purchase or purpose, they are often unsecured. This means that the debt is not related to real assets, unlike a home mortgage is home or auto loans is on the vehicle. If a private loan is to be guaranteed by guarantees, it should be explicitly mentioned in the agreement.
While loans can be made between family members – a family credit contract – this form can also be used between two organizations or companies that have a business relationship. If the total amount of the loan is of great value, it is a good idea to require the signature and details of a guarantor – someone who can vouch for the borrower and work as a guarantee of repayment, the borrower should not be able to repay. A loan agreement is a legally binding contract that helps define the terms of the loan and protects both the lender and the borrower. A loan agreement will help put the terms in the luring and protect the lender if the borrower becomes insolvent, while helping the borrower meet contractual terms, such as the interest rate and repayment period. Not all loans are structured in the same way, some lenders prefer payments every week, every month or another type of preferred calendar. Most loans typically use the monthly payment plan, which is why, in this example, the borrower will be required to pay the lender on the first of each month, while the total amount will be paid until January 1, 2019, giving the borrower 2 years to repay the loan.