The issuance of any loan, regardless of the terms of the program, the presence of guarantors or collateral, is carried out only after the borrower and his lender sign an agreement - the main document that will govern all their further relationships until the end of its validity period or until the obligations are fully fulfilled. But such a seemingly harmless document is fraught with many dangers and pitfalls.
In accordance with any agreement, the borrower receives a cash loan from the lender under certain conditions, but in return must fulfill specific obligations stipulated by the clauses of this document. The bank, on the contrary, receives only the rights and opportunities that allow it to “control” the client and demand that he comply with the conditions. But, as it turned out, some financial organizations included other clauses in this document that gave them almost unlimited power.
Of course, loan agreements have a standard form; they were developed by experienced lawyers, so in the event of any force majeure situations, the court decision will only be in favor of the creditor. But it is quite possible to protect yourself from “enslaving” conditions: you just need to carefully study this document (especially what is written in small print at the end), and if you have questions regarding its contents, consult not with a loan officer, but with a competent lawyer.
It should be noted that if the borrower is not satisfied with some point, the bank will never agree to change the loan agreement. Therefore, the client will have to refuse lending from such a bank, choosing a more loyal credit institution. To prevent such a situation from arising on the day of the transaction, it is better to familiarize yourself with the standard agreement before submitting your application.
Early dissolution
If the agreement contains a clause on early termination (non-repayment), this means that the bank has the right to terminate it early, at any time, requiring the borrower to immediately repay the remaining debt (usually within 10 days after receiving the relevant notice) . Moreover, you will have to return not only the principal amount of the loan, but also the interest, penalties, fines and other payments and commissions stipulated by the loan agreement accrued at the time of payment. But what is important is not that the document contains a clause on early termination, but the conditions under which the bank can use this right. As a rule, the borrower believes that if he repays the debt on time, the lender will not use the opportunity given to him. But in fact, the bank will be able to terminate the contract early if the client:
● will not submit information about changes in his income in a timely manner;
● will not report a change of job;
● will conceal information about a change in the place of its registration;
● will enter into an agreement with a non-accredited insurance organization;
● violates the terms of insurance, etc.
Of course, banks rarely use this dangerous clause if the borrower fulfills its obligations in a timely manner and in full. Rather, it is simply an attempt to discipline the client and force him to inform him about all changes in his life that may directly or indirectly affect the payment of the debt (usually bank specialists themselves remind clients of the need to provide this or that document). But it is quite possible that the bank for some reason will want to repay its loan (for example, if it ceases its activities), in which case the clause on early termination will help it to forcibly collect the debt from a bona fide borrower. It is worth noting that it is quite possible to challenge this decision in court if the lender does not allow delays, but it is better to refuse to receive a loan under such conditions, as this may help to avoid additional costs associated with litigation.
Lender costs
It is possible that, in accordance with the loan agreement, the borrower will be obliged to bear all costs associated with lending. The most common option is legal costs if the bank wants to sue the client. But, in addition to legal costs, he will then have to incur additional costs associated with the inventory of his own property if the court is on the side of the creditor. And if we take into account that the law does not have a rule that would regulate the maximum value of this indicator, then the bank, in addition to the principal debt, may require the borrower to pay all its costs, the amount of which may even exceed the principal debt. Unfortunately, it is impossible to appeal such a clause, so it is better not to enter into an agreement on such terms.
Executive inscription
In case of secured lending, the agreement may include a clause on debt collection through a notary’s writ of execution. Using this opportunity, the bank will be able to collect the debt without going through legal proceedings, which is absolutely disadvantageous for the borrower. And considering that it will be quite difficult to appeal the writ of execution in court, it is better to refrain from cooperating with a bank that offers such a loan agreement.
The phrase “Oh, it’s not difficult to deceive me!.. I’m glad to be deceived myself!” may become the motto of most borrowers entering into loan agreements with the bank. Signing, without reading, papers, without asking questions, over time we are surprised at the high cost of our loan and the unlawful, in our opinion, demands of financiers. To all questions, bank managers answer that these conditions are stipulated in the agreement and show the signed papers. In order to avoid getting into an unpleasant situation, you must carefully read the loan agreement. We will talk about the main points that you should pay attention to in this article.
The essence and concept of a loan agreement. Theoretical aspect
A loan agreement is an agreement between the lender (bank) and the borrower. Legal relations arising as a result of the execution of a loan agreement are regulated by paragraph 2 of Chapter 42 of the Civil Code (Civil Code of the Russian Federation). The very concept of a loan agreement is described in Article 819 of the Civil Code of the Russian Federation, its form - in Article 820, the procedure for refusing to provide and receive - in Article 821. Unfortunately, the clear structure of this document is not legally defined: each bank has the right to develop its own standard agreement for individual lending programs, which will be recognized as valid if it does not contradict the current provisions of the law.
As a rule, the structure of the loan agreement includes:
- Preamble: names of the parties to the agreement.
- Subject of the agreement: type of loan, loan purposes, amount, loan terms.
- Conditions for granting a loan: the procedure for issuing funds to the borrower, a list of documents provided to the bank by the borrower (accounts opened with the bank that will be involved in the process of issuing funds are also indicated).
- The procedure for using the loan and its repayment (describes the conditions for repayment of the loan, including early repayment). The interest rate and the procedure for calculating interest must be indicated. The type of repayment is indicated - annuity method or differentiated payments. This section should indicate the effective rate on the loan: it reflects the real amount of the borrower’s overpayment on the loan, taking into account all commissions and payments. Here the bank can indicate the amount of fines and penalties that are levied on borrowers in case of violation of loan terms.
- Ways to ensure loan repayment. The numbers of surety and pledge agreements are indicated, the essence of these documents is briefly described (the passport details of the guarantors are given, the subject of the pledge and its value are briefly described). Guarantee issues are discussed in more detail in the article “Loan guarantee - what are the benefits for the borrower and what is the responsibility of the guarantor.”
- Rights and obligations of the parties to the contract. Typically, in this section, the bank indicates in which case it can demand early repayment of the loan, or prescribes the possibility of assigning its rights as a lender to another organization (including without warning the borrower). The borrower's rights include receiving the loan in full and on time specified in the agreement; Responsibilities include timely repayment of the loan and fulfillment of other conditions (providing property for inspection, providing income certificates for the annual reassessment of financial condition, providing insurance policies, etc.). If circumstances arise due to which the borrower will not be able to repay the loan on time, he is obliged to immediately notify the bank.
- Responsibility of the parties. If fines and penalties were not indicated previously, they are indicated in this section. The circumstances under which the borrower and the lender are relieved of responsibility for failure to fulfill or untimely fulfillment of their obligations (force majeure) are also indicated.
- Legal addresses of the parties, details, final provisions.
Naturally, this is just a template. Each bank may have its own form of agreement, but despite this, the borrower should know that there are clauses and provisions of the agreement that must be treated with particular care. More about them below.
Be careful: read the loan agreement and look for “traps”
First of all, study the terms of interest calculation. For both a cash loan and a secured loan, interest should accrue not from the date of signing the agreement, but from the moment the funds are actually issued to the borrower (received at the cash desk, transferred to the counterparty’s account, transferred to the current account).
If the debt is not paid on time, the bank has the right to apply not only penalties, but also to write off funds from all accounts opened by the borrower with a given credit institution, but only if this is specified in the agreement. Also, most agreements indicate that the bank has the right to the borrower’s property if the latter refuses to fulfill its obligations.
We recommend paying attention to the conditions for early repayment of the agreement: in this case, banks are legally prohibited from levying fines or applying any other sanctions. The borrower has the right to make early repayment of the loan in part or in full at any time convenient for him (sometimes there is a requirement to notify the bank about this in advance).
In addition to the points listed above, there are several more that cause concern among borrowers: the possibility of increasing the loan rate and the requirement to repay the debt ahead of schedule. Let's take a closer look at how these creditor rights are reflected in the loan agreement.
Changing lending terms unilaterally: what you need to be prepared for
Clause 1 of Art. 450 of the Civil Code of the Russian Federation provides for the possibility of specifying the following condition in the loan agreement: “If the Central Bank of the Russian Federation changes the refinancing rate, the bank unilaterally has the right to increase the interest rate for the use of borrowed funds.” Unfortunately, this norm is legitimate, and when applying for a loan, this risk must be taken into account by borrowers. Please note that the bank can unilaterally increase rates by notifying you in writing several days in advance (usually from 14 to 30), or it will need to sign an additional agreement with you to the loan agreement (the second option is preferable).
You should also be prepared for the fact that in certain cases the bank may demand early repayment of the loan (Part 1 of Article 450 of the Civil Code of the Russian Federation). Yes, Art. 811, 813, 814 and 821 of the Civil Code of the Russian Federation indicate that in case of improper fulfillment of the obligations undertaken by the borrower, loss of collateral, reduction in the estimated value of the collateral, misuse of funds issued under the targeted lending program, the bank has the right to insist on early repayment of the loan and accrued percent. Be careful: the wording “...return the loan amount and interest due...” implies that you must repay the interest for the entire period for which the loan schedule was calculated, and not just for the actual time of using the loan.
To summarize, we note that signing a loan agreement should be taken extremely seriously. By carefully studying the document, you will insure yourself against unpleasant surprises and unnecessary expenses in the future: if some point is not completely clear to you, it is better to ask the manager to clarify it - then you will be sure that you are not buying a “pig in a poke.”
Additional information on this issue can be obtained in the Borrower’s Memo on a Consumer Loan, which is an appendix to
The relationship between the lender and the borrower is regulated by a special document – a loan agreement, which is signed at the time the loan is issued. How many pitfalls can this document contain?
The agreement states that the lender gives money to the borrower, but in return he must fulfill certain obligations, for example, repay the debt along with interest. The lender himself receives rights thanks to which he can literally “control” the borrower, demanding that he fulfill the terms of the agreement. In some agreements you can also find additional clauses that give the creditor almost unlimited power. In the event of any force majeure, the court's decision will be in favor of the creditor. But how to protect yourself from the “enslaving” terms of a loan agreement? The most important thing is to read all points of the document, including small print and additional sheets.
But often, if the borrower is not satisfied with a certain clause in the agreement, the bank does not change it, and the borrower simply will not receive the loan. Therefore, read the standard agreement of this bank in advance so as not to apply for a loan in vain.
Early dissolution
Some people confuse this clause with early repayment. Although the words are different, they really have the same meaning. Early termination of the agreement means that the bank alone has the right to terminate the agreement, and the borrower will have to immediately repay the entire remaining debt along with interest on the loan. Carefully study this clause of the contract, if there is one.For what reasons can a bank terminate a loan agreement early?:
If the borrower does not report a new job;
If you do not inform the bank about the change of place of registration;
If he violates the terms of insurance and so on.
It is quite rare to find a situation in which a bank uses this clause of the agreement. Often, such a clause is more a way to discipline their clients, who will have to notify the bank of all important changes in their lives. Of course, we are only talking about changes that may affect income or debt repayment.
Costs Clause
Sometimes in a loan agreement you can find a clause in which the bank obliges the client to bear all the costs of lending, that is, these are the costs of legal support in case the bank has to sue the borrower. This item also includes additional costs. Sometimes the amount of these expenses turns out to be more than the debt itself, and it is unlikely that it will be possible to appeal it, since our legislation does not have a maximum value for the costs that may exist.Executive inscription
If the loan is secured, then the agreement will contain a clause regarding the notary’s writ of execution. If this is in the agreement, this means that the bank can collect the debt without going to court. This is unprofitable for the borrower, but very convenient for the bank. It is better to refrain from taking out a loan from a bank that has such a clause in the loan agreement.Early loan repayment
Some banks prohibit repaying your loan early and may even charge you additional fees if you decide to pay off your loan early. Read the early repayment clause very carefully.Common property
In some loan agreements there may be a clause stating that the spouse is not against the husband (wife) applying for a loan from the bank. And that in case of non-payment, he (she) agrees that their common property will become the property of the bank. Never sign a contract with such a clause.Life insurance
This is an additional bank commission, which is a voluntary-compulsory procedure. But at the legislative level, insurance is voluntary and the borrower has the right to refuse.These are not all the dangers that a loan agreement may hide. Therefore, when signing such an agreement, it is worth using the services of a professional lawyer.
Car financing is essentially a three-way transaction involving the bank, the car dealership and the buyer. The more complex the purchase, and the greater its cost, the more careful you need to be in drawing up contracts and filling out any documents. The buyer has to choose a good car and the most profitable loan program; this is quite difficult to do without professional help. What should you pay attention to when signing a car loan agreement?
What should be reflected in the loan agreement
A loan agreement is the main document that reflects the rights and obligations of the parties to both parties to the transaction. You need to pay utmost attention to each point., since in the end it is the terms of the contract, and not the initial promises, that will determine the size of the monthly payments and the total amount of the overpayment. It is important to know what points to pay attention to when signing a car loan agreement, so as not to end up deceived:
- Interest rate on a car loan. Make sure it is exactly the size you were originally promised. A very important point: does the bank have the right to change the rate unilaterally? If it is specified in the contract you signed, then in the end it may turn out that the rate is increased by several percent just a few months after receiving the loan without explanation.
- Availability of additional commissions and payments. Since 2008, all banks have been required to stipulate in the agreement the full cost of the loan, that is, not only the principal amount of the debt with accrued interest, but also all service payments. A simple example: if a loan is taken out for 4 years, and the service fee is 0.5% per month, then in the end the client will overpay 24% above the rate. An expensive purchase will result in a very impressive amount. Commissions may be charged for processing the client’s application, transferring funds to the salon’s account, and for each monthly installment.
- Down payment amounts. The size of the interest rate may depend on it, so it is more profitable to pay more first, so as not to overpay later. If you receive a loan without a down payment, the rate automatically increases, since the additional profit should compensate for the banking risk.
- Conditions for early repayment. Some banks impose a moratorium on early repayment for a certain period or set limits on the deposited amount. It is not profitable for any credit institution for the client to pay in advance, because the bank loses profit on interest. If you plan to pay off your loan faster, you need to pay special attention to this point.
- Fines for late payments. Rarely does a borrower, when receiving a loan, think about what will happen if he cannot pay it off. However, the financial situation can change at any time, and then the problem of fines can become very acute. Find out in advance whether the bank has the possibility of debt restructuring, and under what conditions the credit institution can terminate the agreement.
Knowing what to look for when signing a car loan agreement with a bank, you can calculate how much the banking service will ultimately cost you.
Don't be shy about counting and asking questions. If the bank is playing a dishonest game, the manager will cleverly divert the conversation from the desired topic, rush the client into signing an agreement, and even threaten to refuse to receive money. Naturally, when a car has already been selected and a purchase and sale agreement has been drawn up, the buyer strives to complete the transaction as quickly as possible, not paying attention to the “little things”, which in the end can be very expensive.
The most dangerous clauses of the contract
There are several points that the client simply must clarify before signing the contract. If you do not know which clauses of a car loan agreement are dangerous, you can come to an interview at the bank with your lawyer, who will be able to understand the intricacies of clerical speech that is used to write all bank papers.
Some clauses of the loan agreement can cause large expenses and even litigation:
- The borrower may be required to insure his life, as well as enter into a car insurance agreement under CASCO in a strictly defined “partner” company on unfavorable terms for him. This is illegal and you can easily refuse insurance, but the bank may respond by finding an excuse to simply refuse the loan. As a result, in order not to give up the car, the salon client agrees to a deal that is too expensive for himself, and will have to pay for it over the next few years.
- The bank may require the borrower to provide immediate notification of a change in personal data or place of residence. If you do not pay attention to this, the bank may impose a large fine, which will add additional interest in the future.
- Payment schedule. Make sure the payment schedule contains the correct numbers. Add up the sum of all contributions and make sure that the result is equal to the full cost of the loan specified in the agreement. If there are even small discrepancies, this issue must be clarified.
- There may also be an indication that without the approval of the bank you cannot get another loan from any organization. Such a requirement is also not entirely legal, but many banks have this clause in the contract.
If you are in doubt about what to look for before signing a car loan agreement, read what is written in the smallest and most incomprehensible font. Most often, this is where the most important information is hidden. Sometimes, already during the judicial review of the case, it turns out that the borrower did not know about certain obligations at all, because he did not bother to read about them.
Everyone knows that bank loans are a very expensive service, but often this is the only way to get your own new car. Be careful when choosing a loan program, contact only trusted banks, then the loan will be repaid on time and without complaints.
Whatever the type of agreement and the individual clauses in it, the loan is issued only after the lender and borrower have signed the agreement. An agreement is the main document defining the relationship between the bank that provided the loan and the client who received the loan, valid until the end of the loan term. But often the agreement has dangerous nuances for the borrower, who, along with the money, takes on many unprofitable obligations. At the same time, the bank, when providing a loan, has many ways to control the loan holder in every possible way. Having signed the contract, the client can no longer refuse the obligations assumed, because the document was created by experienced professional lawyers, and it is almost impossible to protest one or another provision of this paper. At the same time, when concluding a transaction, the borrower is unlikely to be able to insist on making any amendments designed to protect its interests. Banks, as a rule, always reject any changes proposed by clients and do not change their terms. It turns out that a person who wants to take out a loan must a priori agree with the conditions offered to him by the bank, even if this is fraught with dire consequences for him. But they do not always have a standard form of agreement. Many clients do not read it completely or inattentively before signing a document; banks, knowing this, add various nuances to the clauses that help them further bind creditors hand and foot. Therefore, before going to the bank for a loan, we suggest that you pay close attention to some aspects that may pose a danger to you.
Early dissolution
The bank may set a condition under which it has the right to demand early termination of the contract at any time. The client is asked to repay the debt as soon as possible along with all penalties, commissions, fines, interest, etc. 10-30 days are given for this from the date of arrival of the notification letter. But you need to carefully study the terms of such an agreement. Credit holders often believe that the bank cannot apply this clause of the document to them, because intended exclusively for debtors and other citizens with a bad credit history. But in fact, a wide variety of reasons can contribute to early termination of the contract:
- a person may not have notified the bank that there have been changes in his marital status (marriage or divorce, the birth of a child, the establishment of guardianship, adoption, etc.);
- the client could also enter into an insurance contract with a company that has not been accredited, etc.;
- the client did not notify the bank that there were changes in his financial situation (changed job, transferred to a lower paid position, etc.).
It must be said that for the most part, banks resort to these and similar provisions in contracts only in order to protect themselves from possible violations of payment deadlines by the borrower, in order to exert a disciplinary influence on him (when concluding an agreement, bank employees usually inform the client about the need to warn bank about their changed life circumstances). In the same cases, if the person who provided the loan is going, for example, to terminate his activities and seeks to close all existing loans, the provision for early termination comes in very handy for him. In such a situation, the client has the right to challenge this requirement in court, relying on the fact that he regularly makes monthly payments and thus fulfills all obligations on his part. But the most reasonable decision would be to simply give up the idea of taking out a loan on such terms - this will save you from unnecessary business expenses, keep your nerves calm and save time.
Terms of the loan agreement
The terms of the loan agreement may be such that the client is obligated to bear both his own costs associated with receiving and returning money, as well as any bank expenses for this loan. Let's say the borrower is going to file a lawsuit against the lender - in this case, he will have to reimburse the latter for all inevitable legal expenses. If the bank deems it necessary to collect the debt through the court, then the borrower will again be obliged to reimburse the bank for the costs of the trial and the property inventory. The bank can issue any invoice to the client, since the banking law does not prescribe the exact amount of costs acceptable for reimbursement of bank expenses by the borrower. The bill may significantly exceed the loan amount, and the client will not have the opportunity to appeal this provision of the contract. It follows from this that it makes sense to completely refuse the services of a bank that offers lending on terms that are so unfavorable for the borrower.
Notarial writ of execution
If collateral lending is involved, then it is wiser not to sign an agreement in which the bank has the right to retain the client’s pledged property using a notarial writ of execution. This clause gives the bank the right to collect debt without the participation of the court. Naturally, such a turn of events can in no way be in the interests of the person who applied for the loan. It would be more correct not to give the creditor the opportunity to deprive you of the property pledged as collateral. Appealing a notary's writ of execution through the court is a very difficult and often futile task.
