Signing a loan contract can be intimidating if you have never done it before. The legal terminology is overwhelming, and makes the process feel scarier than it needs to. But in reality, the legally binding document called a loan contract is there to protect both the lender and the borrower.
The Importance of a Loan Contract
A contract is nothing more than the paper version of a handshake. It is an agreement that both parties endorse, so that there can be no later dispute over the terms.
All terms and conditions for the loan will be elucidated and made plain in the wording on the loan contract. If it is not in the contract, it technically is not a part of the deal. For example, the loan contract should specify that the APR or interest rate will not change for the life of the loan. If it does not state this, then legally the lender can increase your rates!
The lender uses the contract to protect their interests. It is your job to make sure the contract also protect your interests. The lender won’t do it for you, so be careful and make sure you read and understand everything in the contract.
How to Decipher a Loan Contract
Sometimes these legal documents can be a little bewildering. Unless you have a law degree, the “legalese” of the fine print can be impossible to decipher. This might be a standard issue contract, or it may be confusing on purpose.
Do not be intimidated!
The best advice to follow is to ask questions. If you don’t understand something in the loan contract, ask for clarification. The lender should be happy to provide answers to all your questions. And if they do not? That is a clear sign you should find a different lender.
No matter who you borrow from, no matter how great the terms are, never under any circumstances sign the contract until you have all your concerns answered.
A contract cannot be un-signed. Make 100% sure it is the right financial choice before you sign it.