Personal Loan Agreement - Things to Know Before Signing It

July 15, 2023 • 1666 views

A Personal Loan provides the financial backing that you need in any circumstance. You can use it to fund weddings, vacations, higher education, or any emergency need. Along with that, this type of loan often comes with good loan amounts, flexible repayment tenures, and competitive interest rates. 

However, once you finalise your loan, you will have to sign a loan agreement. What is it? What are things you should know before signing one? We will answer these questions in our article below. Keep reading to know more.

Major Things You Should Know Before Signing a Loan Agreement

A Personal Loan agreement is a written document that outlines the terms of a loan and is signed by both the lender and the borrower. The agreement specifies when and how the borrower will repay the loan, including any costs involved. It also includes the terms and conditions that both parties must follow. Loan agreements are important because they ensure that the borrower and lender are protected under a contract.

Furthermore, there are certain components in a loan agreement that you should know of. Below are the most common ones you will see even in a simple Personal Loan agreement form:

The borrower section will comprise the below information

  • The applicant’s legal name
  • Full address
  • Employment Status
  • Details of the co-signer or guarantor, if applicable

On the other hand, the lender section of the agreement will include the below

  • Name of the lending institution
  • Authorisation to provide the loan

Along with these, the agreement also has information about the loan amount and tenure, interest rates, repayment, foreclosure, fees and charges, default clause, and other terms and conditions.

Now, let us look into a few things you need to know before signing a loan agreement

  • Brand Value: If you are going into a long-term financial commitment, such as a loan agreement, you need to know how reputable the lender is in the market. A reliable lender with a strong brand presence is likely to offer efficient and consistent services.

Also, lenders that have a well-known reputation are often very experienced in their respective industries. When a lender has a good understanding of Personal Loans, they can provide customised financial solutions, recognise the unique challenges you might face, and offer valuable insights.

  • Interest Rate: This is a crucial point to remember and can be easily overlooked in your rush to acquire a loan. Being aware of the interest rate will tell you about the borrowing cost of the loan, which will further help you evaluate your repayment.

Hence, it is preferable to avail of a Personal Loan with a lower interest rate so that you can pay the monthly instalments easily. If your credit score is good, lenders will see you as a low-risk borrower, making them more willing to lend you loans with lower interest rates.

  • Loan Tenure: Checking the loan repayment tenure before signing a Personal Loan agreement is important because it tells you how long you must make regular payments to pay off the loan. Longer tenures typically mean smaller monthly payments, while shorter tenures require larger monthly payments.

Considering the repayment tenure helps ensure that you can manage the loan payments comfortably without facing financial difficulties. Although the repayment tenures vary from lender to lender, some financial institutions usually have a loan tenure ranging from 12 months to 60 months.

  • Fees and Charges: In addition to penalties for late payment or early loan closure, there are other fees associated with Personal Loans. These include processing fees, which typically go up to 2% of the loan amount. Processing fees cover the administrative costs incurred by the lenders. In addition, borrowers may also be required to pay verification charges. These charges cover the cost of background checks conducted by financial institutions to assess the borrower's credentials and repayment capacity.
  • Features and Benefits of a Loan Agreement: A personal lending agreement acts as a security of sorts between the borrower and the lender. If there is any disagreement about how much money is owed, the interest rate, or the deadline for repayment, the agreement serves as solid evidence to determine the exact values of these aspects. Similarly, neither party can engage in fraud, and the chances of any fraudulent activity occurring are extremely low. Additionally, the document clearly shows the signatures of both parties, making it difficult to forge signatures or create fake agreements.


As borrowing money carries legal obligations, it is crucial for the borrower to patiently read and understand the loan contract. It is also important to note that once the loan agreement is signed, both the borrower and lender are obligated to follow the terms of the loan. Therefore, before selecting a lender and finalising the loan agreement, it is advisable to compare different lenders and choose a reliable one.

Frequently Asked Questions

  • Should a loan agreement be signed by both parties?

Yes, both the lender and the borrower must sign a loan agreement. When both parties sign, it acts as proof that they have agreed to the terms and conditions stated in the agreement. It also creates a legally binding contract, ensuring clear communication and understanding between both parties.

  • Why is it important to be careful before agreeing to cosign a loan?

Cosigning is a process where the cosigner is also made responsible to repay the loan alongside the borrower. Before agreeing to cosign a loan, it is important to exercise extreme caution for several reasons. First, cosigning means you share equal responsibility for repaying the debt if the primary borrower fails to make payments or defaults on the loan. Second, cosigning can impact your credit score. Any missed or late payments by the primary borrower will reflect on your credit history.

  • Is a loan agreement valid?

Yes, a loan agreement is a legally binding contract between a lender and a borrower, outlining the terms and conditions of the loan. When both parties willingly enter into the agreement and provide their consent, the loan agreement becomes valid and enforceable under the law.


We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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