What does a loan agreement cost? If you need a loan or are considering providing a loan, you may ask this question. Let’s explore this question and review some general information about loan agreements and why they are necessary.
How Much Does a Loan Agreement Cost?
A loan agreement is a legally binding contract between a party borrowing and lending the money. Loan agreements can range from an informal promissory note between friends and family to a more formal loan arrangement from a financial institution for a mortgage or a car.
The purpose of a loan agreement is to lay out the terms of the loan, the responsibilities of both parties while the loan is being repaid, and to protect both parties if either side defaults on their obligations. Whether the loan is a simple promissory note or a detailed auto loan, most loan agreements will cover basic information like:
- The total amount of money borrowed
- Payment due dates
- Interest rate
- Late fees and penalties
Loan agreements are important contracts that protect the lender and the borrower throughout the loan. For this reason, lenders – whether an individual, business, or financial institution – usually choose to hire an attorney to draft the loan agreement.
Loan agreements must be drafted correctly to be legally binding and enforceable and abide by all state and federal laws that govern loans.
Based on ContractsCounsel’s marketplace data, the average cost of a loan agreement is $495.75 across all states and industries.
On-Demand Loans and Fixed Payment Loans
The two main repayment options for loans are on-demand and fixed payment. The type of loan will dictate the variety of repayment options available.
- On-Demand Loans. An on-demand loan is used for short-term borrowing and is most often used between friends and family or for informal loans. Repayment for on-demand loans is dictated by the lender and should be laid out in the loan agreement. For example, a brother loans his sister $3,000 to buy a car, and the loan agreement requires the sister to repay the loan within three months.
- Fixed Payment Loans. Fixed payment loans are more common for larger sums of money loaned by financial institutions. A repayment schedule is established when the loan is executed. These loans usually include interest rates, maturity dates, and penalties for late payments. A bank lends $15,000 to buy a car. It requires $200 monthly with a 5% interest fee. If the payment is late, the borrower is fined $30.
What is Included in a Loan Agreement?
The clauses and terms, and conditions of a loan agreement will vary based on the type of loan and the parties involved. For example, a mortgage for $200,000 will be more complex and include more terms than a simple promissory note for $500.
No matter the type of loan or the amount of money involved, all loan agreements should include this essential information:
- Contact information for the lender and borrower
- Total amount of money being borrowed
- Effective date and length of loan
- Payment schedule
- Collateral (if applicable)
- Interest rate (if applicable)
- Penalties for non-payment
- Governing law
If you are unsure what clauses and information need to be included in your loan agreement, contact an experienced lawyer to help guide you through the loan agreement process.
Loan Agreement Projects
Loan Agreement Drafting
When two parties enter a loan agreement, it is common for the lender to provide the loan agreement. However, the lender is the party taking the most risk, so many lenders choose to hire an attorney to draft the contract. An attorney will know what terms and conditions must be included in the loan agreement to protect the lender and ensure they are repaid.
Before beginning the draft for a loan agreement, a lawyer will meet with the lender to go over the terms and conditions that the lender wants to include in the contract. Once the lawyer has a good idea of what the lender is trying to accomplish, they can begin drafting the contract.
Loan Agreement Review
Borrowers are also assuming risk when they sign a loan agreement. The borrower will be subject to the repayment terms established in the contract, and failure to repay the loan could result in the property repossessed or a civil lawsuit for breach of contract.
Before signing the loan agreement, it is recommended that the borrower hires a lawyer to review the contract. The lawyer will ensure the client’s interests are protected and the agreement is fair and reasonable.
Loan Agreement Drafting Cost
The type of loan agreement needed will heavily impact how much the loan agreement costs. For example, longer and more complicated agreements with custom terms will take more time to draft and therefore cost more legal fees than a simple promissory note.
ContractsCounsel’s marketplace data shows the average loan agreement drafting costs are $587.50 across all states.
Loan Agreement Review Cost
If a borrower hires a lawyer to review their loan agreement before signing, they will be responsible for their legal fees. However, review costs are generally less than drafting costs because they require less time from the lawyer.
ContractsCounsel’s marketplace data shows the average cost to review a commercial loan agreement is $404.00 across all states.
How Do Lawyers Charge for Loan Agreements?
Hourly Rates for Loan Agreements
The lawyer provides the client with a set hourly rate when using hourly rate. The lawyer will then bill the client at that rate for the duration of the project or case. Depending on the length of the project, the client will receive periodic bills or one final bill at the end of the representation.
Hourly rates benefit lawyers because they will be compensated for every hour spent working on a client’s project. However, clients may not like this fee structure because they will not know the total cost of legal services until the end of the case or project.
ContractsCounsel’s marketplace data shows the average hourly rate for a loan agreement lawyer ranges from $200 - $350 per hour.
Flat Fee Rates for Loan Agreements
If a lawyer is completing a specific project for a client, like drafting a loan agreement, they may choose to charge the client using a flat fee structure. The lawyer can estimate how much time the project will take to complete and quote the client a set rate for the entire job.
This structure benefits clients because they know exactly how much legal services will cost. However, for lawyers, flat fee rates can be tricky. For example, they may be unpaid for work hours if the project takes longer than expected.
ContractsCounsel’s marketplace data shows the average flat fee rate for a loan agreement is $495.75.
Get Help with a Loan Agreement
Do you need help with a loan agreement project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from corporate lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.