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Questions & Answers

Why would I need a Loan Agreement?

Even among close relations, it's essential to document the terms of any loan. A well-structured loan agreement provides clarity on repayment schedules, interest rates, and any collateral involved. This not only ensures that both lender and borrower have a mutual understanding but also offers legal protection should disagreements arise.

What is the typical interest rate for loans in the UK?

Interest rates vary based on credit history, loan type, and lender. Secured loans generally have lower rates (from 4-6% APR), while unsecured loans may range from 6-30% APR.

What if the borrower stops repaying the loan?

A well-drafted agreement outlines default terms, allowing the lender to take legal action, claim collateral (if applicable), or negotiate repayment alternatives.

What does a business need to do to ensure eligibility for lending?

A business must verify that lending is permitted under its articles of association, ensure compliance with FCA regulations (if applicable), and assess the borrower’s creditworthiness to mitigate financial risk. Legal guidance helps businesses structure compliant and enforceable loan agreements.

Is loan interest taxable in the UK?

Yes, lenders must declare interest earned as taxable income, while borrowers may claim tax relief on certain loans, such as mortgages.

Can a loan agreement be changed after signing?

Yes, but both parties must agree to the amendments in writing to ensure legal validity.

Can I draft my own loan agreement?

While online templates exist, they often lack the precision needed to protect your interests. A lawyer ensures your agreement is legally airtight, tailored to your specific situation, and fully compliant with UK regulations—giving you peace of mind and reducing the risk of costly disputes.

What should I think about when drafting a Loan Agreement?

Loan amount, eligibility, repayment terms, interest rate, collateral (if any), consequences of default, and governing law.

What is the difference between secured and unsecured loans?

Secured loans require collateral (e.g., property) and often have lower interest rates. Unsecured loans don’t need collateral but usually have higher interest rates.

What happens without a loan agreement?

Without a contract, terms may be unclear, disputes harder to resolve, and enforcing repayment legally challenging.

Should I choose a secured loan or unsecured loan?

The right choice depends on your financial situation. A secured loan may be preferable if you need a larger sum and have an asset to offer as security. If you’d rather not risk your assets and qualify for an unsecured loan, this could be a better option—though it may come with a higher cost in the form of interest.

Can a loan be drawn down in separate tranches?

Yes, a loan can be disbursed in multiple stages rather than as a lump sum. This must be clearly stated in the loan agreement, specifying conditions for each tranche to ensure smooth and legally enforceable disbursement.

Can a business provide a loan to a borrower?

Yes, businesses can lend money, but they must ensure the loan complies with financial regulations, tax laws, and company policies. A properly drafted loan agreement is essential to outline repayment terms and protect the business.

Can I create a loan agreement for a loan I have already given?

Yes, a loan agreement can be drafted after funds have been lent. However, it’s crucial to document the terms as soon as possible to avoid disputes. A lawyer can help formalise the loan properly, ensuring it is legally binding.

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