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Loan contract: the subject of the loan contract

The subject of the loan contract can only be monetary funds in non-cash and cash form, not only in dollars but also in foreign currency. Such a loan contract is bilateral since the bank undertakes to provide a loan, and the borrower must return the amount of the credit received and pay the interest on time. At the same time, the borrower has the right to demand that a loan be provided to him, and the bank has the right to request its return and payment of interest. A loan contract is a consensual transaction that comes into play only after both parties have agreed on the terms of the loan. Also, the loan contract is complicated because the payment of interest under the loan contract is one of the essential conditions. The inclusion in this loan contract of a condition for issuing an interest-free loan makes the transaction null and void.

Parties and form of the loan contract 

Banks and non-bank credit-depository organizations that hold the relevant licenses of the Bank of Russia can act as creditors under credit loan contracts. Borrowers are any individuals and legal entities that have the legal capacity. The loan contract must be concluded exclusively in writing. In case of non-observance of the written form, the contract is considered null and void. In practice, banks are developing a standard model loan agreement form, which is a merger loan contract. If the loan contract contains a provision on a real estate pledge, it is subject to mandatory state registration following the procedure, state registration of rights to real estate, and transactions with it.

Per the norms of civil law, a loan contract can be concluded by exchanging documents using the telegraph, teletype, telephone, electronic, pdf, or other communication, establishing that the simple loan agreement comes from the party to the loan contract. Quite often, an electronic digital signature is used, which fully corresponds to simple writing.

Essential elements of a loan agreement form

The law does not define a clear structure of the loan contract, but, as a rule, it should include the following sections.

1. The preamble contains the names of the parties who sign the loan contract.
2. The subject of the contract: In this section, the type of loan, its purpose, amount, terms of issue, and refund of money should be prescribed.
3. Loan granting procedure: This indicates what documents the borrower will provide to the lender – the terms, forms, and procedures for the issuance of credit by the bank to the borrower.
4. The procedure for calculating, paying interest, commissions, and loan repayment: The size of the interest rate for using the loan should be indicated here. The process for calculating interest on a loan, as the borrower pays them. Loan repayment method - annuity or differentiated payments. What are the conditions for the early repayment of the loan? In what amount and order are commissions charged on credit? In what cases and how are penalties applied, their size, etc?
5. Ways to ensure loan repayment: This section indicates the number and content of the pledge loan contract, surety of third parties, and other conditions.
6. Rights and obligations of the parties: The lender has the right to indicate in the loan contract the cases when he may demand early repayment of the debt. He can also, without the consent of the borrower, assign his rights under the loan contract to another credit institution. At the same time, the lender is obliged to issue a loan to the client on the terms and conditions stipulated by the loan contract. The borrower has the right to demand from the credit institution the provision of a loan in the amount, on the terms and conditions, which are stipulated by the loan agreement. The obligations of the borrower include the timely repayment of the loan and payment of interest within the period specified in the loan contract. If circumstances arise that have caused or may result in non-fulfillment or improper fulfillment of the terms of the loan contract, the borrower must immediately inform the credit institution about this.
7. Liability of the parties: This section of the loan contract provides for the liability of the parties for violation of the terms of the loan contract. The appropriate sanctions are indicated.
8. Legal addresses, requisites, and signatures of the parties. If we talk about legal entities as parties to the loan agreement, then this section may need to include the fact of confirmation of the transfer of money. Instead of a receipt you may use:

-   Cash order (receipt for an incoming cash order);

-   Payment order (with a note of the bank on the execution and an indication in the purpose of payment that the funds were transferred on the basis of a loan agreement);

-   Bank statement;

-   Act of acceptance and transfer, etc.

Creation of a loan agreement

Before concluding a draft loan contract, the lender offers to provide documents certifying the borrower's solvency. The law does not stipulate the list of documents, and it is usually drawn up by the creditor. Having prepared all the necessary documents, the borrower draws up a loan application, which generally must contain the following information:

• Credit amount;
• Loan appointment;
• In some cases the desired interest rate;
• Estimated loan term;
• Provision of security to the bank: surety, bank guarantee, pledge.

Types of loan contracts

In practice, the following types of loan contracts are distinguished:

• Secured and unsecured. When a secured loan contract is entered into, an obligation loan contract is drawn up at the same time, for example, a collateral or surety loan contract;
• Target and non-target. When concluding a targeted loan contract, the loan contract specifies the purpose of the loan, for which the issued funds can be used. Inappropriate contracts are not so severely restricted;
• Consumer loan. According to such a loan contract, an individual receives borrowed funds at his disposal, which can be spent on meeting exclusively personal needs;
• Investment loan contract. Under such a loan contract, funds are issued to participants in investment projects on individual terms;

Change of contract

When the text of the concluded loan contract does not contain references to a unilateral change in its conditions, the creditor does not have the right to change them independently. Changing interest rates on loans unilaterally is possible only in cases provided for by federal law or by a loan contract with a client. The contract can be changed or terminated only in connection with significant changes in circumstances. The loan contract to change the terms is made in the same form as the contract. By a court decision, the contract can be changed in exceptional cases such as:

• Entailing damage that significantly exceeds the costs necessary to fulfill the agreement on the terms modified by the court;
• Being contrary to the public interest;
• Extending of the loan contract is possible by amending its text (about changing the loan repayment period). You can also draw up an additional loan contract to extend the contract.

Termination of the loan agreement

The loan contract can be terminated both by the loan contract of the parties and unilaterally. But only at the written request of one of the parties on the grounds provided for by the contract and current legislation. The borrower has the right to terminate the loan contract unilaterally only in one situation: if he has not been granted a loan in the amount and on the terms stipulated by the loan contract. The right to terminate the loan contract unilaterally is given to the lender in the following situations:

• If the loan is not used for its intended purpose;
• If the creditor has not fulfilled the requirements for repayment of the debt on the loan and other payments provided for by the loan contract on time;
• If the obligations to secure the investment have not been fulfilled;
• In the absence of the ability to control the intended use of the loan;
• When the borrower is sued for the payment of a sum of money, the amount of which will interfere with the fulfillment of obligations under the contract;
• If a decision is made to liquidate, reorganize or significantly reduce the authorized capital of the borrower;
• If the financial condition of the borrower has worsened;
• If the bankruptcy procedure of the borrower is initiated under the legislation;
• If there is a risk of liquidation of the borrower under the legislation.

Early loan repayment

The relationship of the borrower with the credit institution may end even if the loan is repaid ahead of schedule. In this case, early termination of the loan contract is based on the fact that the client has paid off the body of the loan and has no debts for all other payments. It may seem that this option is quite beneficial for a bank client, and you just need to write a statement. However, this is not entirely true. To close the loan contract, even if the entire loan amount is repaid, you still need to pay an amount that is equal to the interest on the loan. This is considered a forfeit due to the cancellation of the loan obligation.

In some rather rare cases, the bank itself may require the client to pay the loan body and interest prematurely. Termination of the loan contract in such circumstances may be caused by the bank's doubts about the client's solvency. The early repayment process begins with an application. The request can be satisfied unilaterally, but this does not mean that the borrower is exempted from fulfilling the terms of the contract. Thus, the loan contract is not entirely immutable but can be terminated subject to the established legal requirements.

Five tricks of loan contracts and agreements: When it is better to refuse a loan?

1. Availability of an arbitration clause. Arbitration clause - a condition according to which all disputes surrounding contract templates are submitted to the arbitration court - a non-governmental organization whose role is to resolve disputes between individuals and legal entities. In the presence of such a loan contract, the parties are deprived of the opportunity to seek justice in a court of general jurisdiction. An application filed with a court of general jurisdiction will be left without consideration by the latter. In this case, the decision of the arbitral court is binding on the parties, and the state is in charge of its execution. It is challenging to dispute the conclusion of the arbitral court since there is a limited list of grounds on which this can be done. Also, legal costs in an arbitration court are an order of magnitude higher than in a court of general jurisdiction. In the case when a bank or other financial organization imposes an individual arbitration court (and often a particular judge), there is no need to talk about the objectivity of the arbitration.

2. Attempts by the creditor to change the jurisdiction of disputes under the loan contract. At the same time, conditions are artificially created (for example, an additional guarantor is imposed - a person proposed by the bank), under which, in the event of untimely performance by the client of obligations under the contract, the lender has the right to go to court, not at the borrower's place of residence, but the place of residence of the mythical guarantor. In this case, just as in the case of the arbitration court, the borrower should not rely on objectivity. However, it should be remembered that disputes related to consumer protection can be considered at the place of residence of the consumer. That is, it is possible in any case to challenge the deadline and terms of the consumer loan contract as one that is discriminatory towards the consumer in court at your place of residence.

3. According to the loan contract, the borrower is obliged to reimburse the lender in full all the costs incurred by the latter in connection with the violation of the loan agreement by the borrower, including for legal services. As a rule, the lender provides the court with a loan contract for the provision of information, consulting, legal services by a specified third party related to the loan contract, as well as documents confirming their payment. Since the liability of the borrower is not limited to any amount, the court decides whether to impose all these costs on the borrower.

4. The presence of a loan contract or clause on the satisfaction of the claims of the mortgagee at the expense of the subject of the mortgage. Such a provision may provide for either the transfer to the lender of ownership of the item of the lease, or his right to sell the subject of the mortgage on his behalf to any person. Moreover, neither a court decision nor even a notary's executive inscription is required. The presence of such a loan contract or clause is the basis for registering ownership of the subject of the mortgage. It is better to refuse to sign the loan contract.

5. The presence in the loan contract of a condition on a possible increase in the interest rate. According to the law, the amount of interest established by the loan contract cannot be increased by a bank or other financial institution unilaterally. Part three of the same article states that the condition regarding the right of a bank or other financial institution to change the amount of interest unilaterally is worthless (that is, invalid and not requiring challenge). Nevertheless, banks do the trick, in advance, including in the loan contract, a condition according to which the amount of interest increases when certain circumstances occur. In this case, it will no longer be a unilateral change in the amount of interest since the borrower has expressed his consent to such a condition by signing a loan contract. The presence of such a condition is the basis for refusal to sign the contract. Sometimes a condition on a possible increase in interest on a loan can be "veiled" under a penalty. For example, in case of violation by the borrower of the terms of the contract, the amount of interest on the loan increases. If the cost of a loan increases significantly, even with a minimal violation, it is better not to get involved with such a loan.