What should be included in the loan agreement?
The legal basis for granting loans to private clients and companies by banks or cooperative savings and credit unions is a credit agreement. What elements should it contain compulsorily to make it valid and binding?
All mandatory elements for the loan agreement signed between the borrower and the lender are included in art. 69 of the Banking Act. The agreement must specify first of all the parties and all conditions for granting and repayment of the loan.
Credit agreement in the light of the Banking Law
Banking Law, the legislator indicated that by the loan agreement the bank undertakes to make available to the borrower for the period of time specified in the agreement the amount of cash for the purpose previously determined. At the same time, the borrower concluding such an agreement with the bank undertakes to use it under the conditions specified in the agreement, to reimburse the amount of the loan used together with interest on the specified repayment dates and to pay the commission on the loan granted.
In the same article we will find guidelines on the form and composition of the loan agreement. First of all, the loan cannot be granted orally – the loan agreement should be in writing to be valid.
Obligatory elements of the loan agreement
The loan agreement, according to the law, should contain complete information about the borrower, the lender and the subject of the agreement – the loan. It must specify in particular:
- parties to the contract,
- loan amount and currency,
- credit target
- loan repayment rules and dates,
- loan interest rate and conditions for its change,
- method of securing loan repayment,
- the scope of the bank’s rights related to controlling how the customer uses the loan,
- bank’s rights related to loan repayment,
- dates and method of making the loan funds available to the borrower,
- the amount of commission charged by the bank, if provided,
- conditions for making changes and terminating the loan agreement.
For loans denominated or indexed to a currency other than the currency, the credit agreement should include detailed rules for determining the methods and dates of determining the exchange rate, on the basis of which the loan amount, tranches and principal and interest installments are calculated , as well as the rules for converting the payout currency or loan repayment.
In the cited article of the Banking Law it was indicated that in foreign currency loans the agreement must contain information on the principles of opening and maintaining an account for the borrower, used to accumulate funds intended for repayment of the loan, and rules for making repayments through such an account.