A legally binding contract between all parties is an integral part of successful lending and borrowing. However, there are things which can remove the legal protection from a loan agreement. So, what do you need to know to ensure that a loan agreement is valid?
Why is it important to have a valid loan agreement?
A valid loan agreement will protect you and your finances. Otherwise, there is the risk of it being denounced as null and void in a legal argument. Loans that have been declared voidable cannot be enforced legally and leave either the lender or the borrower with financial difficulties.
This is why it is always important to seek appropriate legal advice, from companies such as https://www.parachutelaw.co.uk/loan-agreement, when creating a loan agreement, in order to provide financial security and prevent future disputes. If you are a borrower, check out the guidance on personal loans
Invalid loan agreements
There are certain types of loans which are immediately classed as void agreements as the subject of the loan is illegal. A loan agreement should always outline the subject of the loan, along with an acceptance signature from all relevant parties. These signatures will not hold any weight, however, if the subject is considered to be illegal. For example, agreements for loans relating to money laundering or organised crime will always be classed as invalid.
Lack of consideration
A valid loan agreement should contain considerations, including details of who received what. If there is a lack of consideration, however, then the agreement is likely to be classed as void. For example, a loan agreement would not withstand the eye of the law if it is based on past considerations. This means that you can’t legally say you are agreeing to do something if it has already been done.
Fraudulent agreements
If a loan agreement was made under false pretences, then it would be null and void. This means that an agreement would be classed as fraudulent if any of the parties concealed or falsified facts relating to the loan.