A loan agreement, also known as a facility agreement is a complex legal document, which is used while taking a loan from banks. A loan agreement acts as a contract that binds both the borrower and the lender and specifies the terms and conditions for the same. 

At times before taking or providing the loan, the agreement is signed by the parties involved in the process. Therefore, it is essential to go through the loan agreement before signing it. One should know all the essential elements of a loan agreement and how it can impact. While taking loans, the borrowers usually skip reading the loan agreement which should not happen as it creates a legal responsibility on the borrower to repay the amount, therefore one must be thorough with the agreement to understand what type of legal responsibility he is taking up. 

The important elements of a loan agreement are: 

1. Interest Rate: the first and the most important aspect of any loan agreement is the rate of interest at which the loan is being provided by the lender to the borrower. Different loans carry a different rate of interest. The maximum rate of interest is applied on unsecured loans such as personal loans, therefore one must ascertain the source from where they are seeking a loan as well. There are two types of interest rates: 
2. Fixed interest rate: the one which does not change with time. for example, if the rate of interest is 6%, it will remain the same throughout
3. Floating interest rate: it is the type of interest rate that is based on interest rate margins added to the benchmark rate.  

     The basic loan agreements are based on a fixed rate of interest.

1. Default Interest: Loan Agreement also consists of a clause which is the default interest clause. This clause defines the increase in the rate of interest that is payable on amounts that are due and not paid.  
2. Prepayment: The prepayment clause in the loan agreement allows the borrowers to pay for the loan provided early in time. This clause helps in making the loan agreement more flexible. However, the prepayment is only allowed after the interest period comes to an end. This is done to avoid any payment breakage costs. 
3. Repayment: The repayment clause in the loan agreement defines how the payment is to be made by the borrower. It would include the details of EMI which the borrower would make, the dates on which it would be made, default interest rate, charges, claims, and other expenses. EMI consists of repayment of the principal amount and the interest as determined based on the interest rate. 
4. Borrowers’ right: A borrower must be aware of the rights he has while entering into a loan agreement. The borrowers' rights include the bank disclosing all the necessary details concerning the loan to the borrower, no important or material information should be curtailed by the bank in the process. It is the duty of the borrower as well to check and read the agreement before agreeing to it.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.