How to Read a Loan Contract Agreement

| January 2, 2012

Everyone has heard the advice that they must read a contract before placing a signature on it. Once a contract is signed and dated, there is no turning back without legal hassles. Merely skimming through a loan contract agreement is not enough, because one can easily miss fine details in the agreement. Instead, there is a methodical way people should use to read loan contract agreements for the most thorough understanding possible of all their terms and conditions.

To some extent, consumers are protected by the Truth in Lending Act. The Truth in Lending Act was passed in order to make consumers aware of certain details in loan agreements. Even with this disclosure, however, one can have difficulty in understanding what to do with this information.

When reading through a loan agreement, there are certain keywords to look for and pay attention to. First, one should always be sure to look for a finance charge. A finance charge works to quantify the cost of credit. This figure will outright state the amount one will pay in interest over the life of a loan. Also, one can find any associated charges that are required to receive the loan in the finance charge section. One common fee within loan agreements is a document preparation fee.

The Annual Percentage Rate (APR) is another key term to search for in a loan agreement. The APR refers to the annual interest rate one pays to creditors over a year. When comparing loans from different lenders, one should look to the APR as a strong indicator of the best loans out of a bunch.

The amount financed is another key term any person should find in his or her loan agreement. The amount financed refers to the actual dollar amount that one borrows. The amount financed is typically lower than an amount requested on a loan application. This is due to the fact that prepaid finance charges must be deducted from the total loan.

The schedule of payments is another helpful area of a loan agreement to thoroughly read. A schedule of payments will contain information such as the total number of payments one will make on a loan. In addition, a schedule of payments will display the amount required for each payment.

These are the top four terms any person should carefully find and pay attention to in reading a loan contract agreement. Reading these terms will ensure a person fully understands the consequences of a loan contract.

Category: Payday Loan

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