What Is a Binding Loan Contract?

What Is a Binding Loan Contract?
••• signing a contract image by William Berry from Fotolia.com

A contract can be defined as a written or verbal agreement between two parties. For your own protection, take care to ensure that any loan contracts you voluntarily enter into are binding.


Binding loan contracts can be legally enforced, thus “binding” each party to adhere to the agreement.


A binding loan contract will usually reflect the amount of the loan, the amount of interest the lender is charging on the amount, and the method and frequency by which the loan is to be repaid by the borrower.


The ability to request that a court force party to adhere to the terms of a binding loan contract protects the borrower and the lender in the event that either does not adhere to the terms of the original agreement.


A loan contract does not necessarily have to be written to be binding. Verbal loan contracts can be binding but are more challenging to prove in court.


If you fail to pay a lender what you owe under a binding loan contract, the lender may sue you in court and request that your bank accounts be frozen or your wages be garnished.