Consumer Loan Agreement – Legal basis for consumer loans
All natural persons or groups of people who need money in the form of a loan are initially referred to as consumers. As such, as a borrower, you can conclude a consumer loan agreement or consumer credit agreement with a credit institution, i.e. a bank. The institution is then referred to as the lender.
There is a difference between a consumer loan and a commercial loan, which companies in particular can take advantage of.
What is in the consumer loan contract?
Such a contract for a consumer loan must always be concluded in writing to protect the borrower. The necessary information in the contract includes the following information, data or figures:
- Information according to the information before the contract was signed
- Name and address of the borrower
- Lender regulatory authority
- Reference to the borrower’s right to a repayment plan (for loans with a time limit)
- Procedures in the event of termination
- Contractual condition (all necessary information)
- Notice of right of withdrawal
- Signature of the borrower
In addition to the above information, any agreements on insurance or security on the part of the borrower must also be included in the contract. Likewise, the method for calculating the prepayment penalty must be included in the contract if the lender collects such in the event of early repayment.
- Incidentally, it is not sufficient for a legally binding contract to be concluded if the borrower signs on an electronic medium (e.g. writing tablet). He has to do it himself on the consumer loan contract.
If the written form and the minimum content are not observed, the contract is invalid. All legal requirements are intended to protect lenders and borrowers alike.
What should you watch out for in the consumer loan contract?
The borrower should know that despite any formal errors, the consumer loan contract will still be valid as soon as it receives or uses the loan amount.
A look at the effective annual interest rate set out in the contract can also be worthwhile. If this is held too low, the borrowing rate is reduced by the corresponding percentage. In addition, all costs not listed in the consumer loan contract cannot be charged to the borrower afterwards. If no information regarding the term or the right of termination of the contract has been recorded, the borrower can terminate it at any time.
If the lender has failed to record security deposits in the contract, he cannot later request these from the borrower. However, this rule only applies up to a net loan amount of $ 75,000.
In any case, it is worthwhile for the borrower to read the consumer loan contract carefully and to check the content for its correctness. Although the credit institutions work very carefully, there may be advantages to the borrower in the event of formal errors.
What are the advantages of a consumer loan contract?
The great advantage of a written consumer loan contract is the associated legal security for both sides. It contains all important information on the agreed conditions, collateral and, above all, repayment procedures in detail, so that no disputes can arise later.