- 1). Provide identifying information for all parties to the repayment contract. List your name and address on the contract and specify whether you are the lender or borrower. Include the names and addresses of all other parties to the contract. Include phone numbers as well.
- 2). Describe the terms and conditions of the loan. Write down how much money was borrowed. This is known as the principal amount of the loan. Determine when payments will be made whether it’s daily, weekly, monthly, quarterly or annually. Make sure the date due for the first payment is listed and the amount. Write out how much the late charge, if any, will be and when will it be assessed. The language in the contract should tell if there is a grace period (time without penalty before the payment is considered late). The contract should include the number of payments and the total amount of the loan to be repaid, including principal and interest.
- 3). Determine what the interest rate is and how finance charges are calculated. For example, if the amount borrowed is $5,000 with an interest rate of 8 percent and payments are $250, interest charges can be computed. Take $5,000, multiply it by .08, then divide by 12 months. The result is $400 which is divided by 12 to get $33.33. Finance charges for the first month will be $33.33. As the balance decreases the amount of finance charges will decrease as well. Explain that finance charges are calculated on the unpaid balance.
- 4). Make a section on the contract for signatures. There should be enough places on the contract for the borrower and the lender to sign.
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