What Is a Binding Loan Contract?

by Ciele Edwards ; Updated July 27, 2017
A binding loan contract is legally enforceable.

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.

Facts

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

Features

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.

Video of the Day

Benefits

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.

Misconceptions

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.

Warning

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.

About the Author

Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.

Photo Credits

  • signing a contract image by William Berry from Fotolia.com
Cite this Article A tool to create a citation to reference this article Cite this Article