A Brief Introduction About the Payment Agreement
Relationships between borrowers and lenders are prevalent in today’s time. However, such relationships need written proof for additional assurance. Whether you are a borrower or a lender, you may want to sign an agreement that can work as a receipt of the loan. A Payment Agreement specifies all the information and terms & conditions of a loan. It specifies the details of timelines, deadlines, payment modes, installment details, and interest rates.
The agreement can be used if you are borrowing money, lending money, or willing to document monthly payments and interest. Such an agreement helps avoid any confusion or conflict between the borrower and the lender. It also simplifies things for the involved parties. Sometimes, it can get tough to sign such an agreement and remember the little details orally. In the case of a loan, risks are higher.
Everyone wants to be safe with their money, and thus, this agreement is an extremely crucial piece of document. It should be drafted with caution and care. It is also suggested that you take the help of an expert before drafting the agreement. Each agreement can have a different structure as per the requirement; however, some terms remain common.
Other names for Payment Agreement are Loan payment Agreement, Payment Agreement Form, and Payment Agreement Letter.
Who Takes the Payment Agreement? – People Involved
Payment Agreement Contract is signed between a borrower and a lender. It can also be signed if one party is rendering services or products to others. It works as a proof of the loan involved. It is a critical piece of document that needs proper attention. By mentioning the governing laws of your state, you can make the agreement legally binding. The agreement protects both parties. It is suggested that agreement is notarized so that in case of any breach, a third party can mediate.
Purpose of the Payment Agreement – Why Do You Need It?
A loan is a significant transaction between two parties. It requires a lot of work, and it also takes a lot of your memory space if you don’t sign a written agreement. A written agreement ensures you don’t have to orally decide on important things, such as interest rates or installments.
There are other crucial details, such as how the money will be paid back, what is the total amount, etc. that need to be mentioned in the agreement. There is also a possibility of interest rates being involved in the loan process; in such a case, the agreement must mention these details.
Here are some pointwise reasons to sign an agreement –
- It specifies all the details about money borrowed
- It details out the payment mode and timing
- It specifies all other details about the loan
- It ensures there are no confusion and misunderstanding later on
- It provides conflict resolution methods
- It gives the details of interest rate if applicable
- It makes the whole process legally binding
- It makes it easier for the parties to mediate in the case of a conflict
- It contains all the terms and conditions of the loan
- It gives solutions for any unforeseeable situation such as death, natural calamity, etc
Contents of the Payment Agreement – Inclusions
In simple terms, a Payment Agreement is needed when one party owns another some money. One party is a borrower and lender. Both parties can be private parties or some business entities. The agreement will contain all the crucial information about the loan. It will have basic details of the borrower and the lender both. Basic details include name, address, phone number, etc. of both the parties.
If one party is rendering services to another party, then the agreement must include those details. Otherwise, the agreement will only have details of the loan, such as payment method, total payment, installments, payment timing, etc. The agreement must give solutions for unforeseeable situations such as death, natural calamity, etc. The agreement must also give a dispute resolution method. The agreement must mention governing laws.
Another crucial inclusion in the agreement is the late payment fee. When you lend your money to someone, you would want them to pay on time. However, if they don’t, you have the option to ask for a penalty. In an oral agreement, you may not be able to do the same, but in a written agreement, you can add a clause about the late payment fee. You can decide the amount or percentage you want to apply as a penalty.
This may vary from case to case. Further, the agreement must also detail out the information regarding the interest rate if applicable. Interest rates are not always applicable, but if you are charging interest rates, then you must mention their details in the agreement.
How to Draft the Payment Agreement?
A Payment Agreement is a straightforward agreement that saves one from a lot of pain and pressure. It is quite easy to draft this agreement, but one must make sure that the sample is downloaded from a reliable source. You must always take the help of a trusted attorney while signing the agreement. You must also understand how the governing laws will be applied.
Governing laws are a crucial aspect of any agreement as they ensure protection. Before signing the agreement, both parties must sit together or talk to each other in person. They should decide the interest rate or late payment fee. There is also a scope of negotiations for the borrower.
Further, there should be some standard clauses in the agreement. One clause should ensure that either of the party doesn’t change the conditions of the agreement. The agreement should also have a severability clause. It can ensure that if part of the document is found to be invalid, it can be removed without affecting the rest of the agreement. It is advisable that the agreement must be notarized so that in case of any default, a third party can mediate or be present in front of the court.
A Payment Agreement can be of three types, such as Business Payment Contract, Personal Payment Contract, and Installment Payment Contract. Both the borrower and lender should know which agreement will be the right choice for them.
The borrower should always try to negotiate when it comes to interest rates and late payment fees. Some lenders can ask for an exuberant amount of money for late payment or late installment. While the borrower should ensure timely payment, they should also try to talk it out with the lender. Interest rates can make borrowing an expensive deal for the borrower, so they must ensure they use the right tricks to negotiate.
Benefits & Drawbacks of the Payment Agreement
Borrowing money helps a lot of people tackle with many life situations. It is a financial aid that helps many people. However, it is a risky process and requires a lot of trust or proper agreement in place. It is not always possible to lend money only to trusted people. To avoid any conflict and breach, it is advisable that an agreement must be signed.
There are multiple benefits to an agreement. Here are some pointwise advantages of signing one –
- It protects both parties
- It is legally a binding agreement
- In case of any breach, the agreement can be used in front of the courts
- It reduces the risk of a default
- It helps the borrower
- It can provide good interest rates for the lender
- It puts all the details related to the loan in one place
- It maintains a healthy relationship between the borrower and the lender
There are no disadvantages to using a Payment Agreement. It should be drafted carefully to use the maximum benefits. It can be risky for those who have the intention of cheating. For others, it is a useful piece of document.
What Happens in Case of Violation?
Both parties are protected by the agreement. In case of any breach or violation, parties can refer to the agreement and mediate(1). Further, they can approach the court if the matter escalates. Both parties are well within their rights to approach the court. Parties must also fully understand the governing law before signing the agreement. The lender also has the option of applying a late payment fee if the borrower fails to pay on time. Such an inclusion in the agreement reduces the possibility of any violation.
There can be different kinds of Payment Agreement Forms. However, one must ensure that the agreement is drafted carefully, and in addition to common terms, some specific terms are also added. For instance, a Deferred Payment Agreement allows a borrower to start paying installments later sometime in the future. So, if the borrower doesn’t have money immediately, he can start repaying in the future when he has the money. Different agreements have their pros and cons. One must choose carefully.