If you are getting ready to sign a loan agreement, don’t get the pen out until you’ve carefully read the contract. And even then, it you must know what the contract means if you want results. These are six key clauses that might be written in your loan agreement that you should watch out for, and ensure that you are aware of exactly what they mean to you once you enter into the loan contract.
- A fixed rate loan requires the borrower to repay the loan at a specified, unchanging rate, regardless of economic factors.
- For Australian loan agreements, the default interest clause, which enumerates required interest should a borrower miss a payment, must reflect a lender’s actual loss in that event.
- If it does not reflect the true loss to the lender, then the clause is not actually enforceable.
“Whenever the RBA decreases the cash rate target, BBSW will also decrease, and hence the amount of interest the borrower is required to pay will also decrease.”