Loan agreements are binding contracts between two or more parties to formalize a loan process. There are many types of loan agreements, ranging from simple promissory notes between friends and family members to more detailed contracts like mortgages, auto loans, credit card and short- or long-term payday advance loans.

Simple loan agreements can be little more than short letters spelling out how long a borrower has to pay back money and what interest might be added to the principal. Others, like mortgages, are elaborate documents that are filed as public records and allow lenders to repossess the borrower’s property if the loan isn’t repaid as agreed.

Each type of loan agreement and its conditions for repayment are governed by both state and federal guidelines designed to prevent illegal or excessive interest rate on repayment.

Loan agreements typically include covenants, value of collateral involved, guarantees, interest rate terms and the duration over which it must be repaid. Default terms should be clearly detailed to avoid confusion or potential legal court action. In case of default, terms of collection of the outstanding debt should clearly specify the costs involved in collecting the debt. This also applies to parties using promissory notes as well.