Personal loan agreement terms to check before you sign

To check a personal loan agreement, compare the amount you will receive with the loan amount stated, find every fee, read the stated total repayable against the repayment schedule, check what early repayment costs, read what a missed payment triggers, note what the lender may decide on its own, and separate the loan from any optional extra. Those are the numbers and conditions that decide what the loan costs you. The monthly figure on the offer is only one of them.

A loan agreement is written by the lender, and that is normal. It also means the person signing starts at a disadvantage, because the conditions that cost the most are the ones the offer does not lead with. This guide takes each one in turn, with the kind of wording to look for and the question to ask. The clause wording below is written by us to show the pattern. It is not taken from any real agreement.

What should you check in a personal loan agreement?

In the US, the disclosures for a closed-end loan must state the amount financed, the finance charge, the annual percentage rate, the payment schedule, the total of payments, whether a charge may be imposed for paying early, and any late payment charge (US rules). In the UK, before a regulated credit agreement is made, the lender must explain how much you will pay periodically and in total where that can be determined, the features that could have a significant adverse effect on you, the consequences of missing payments, and your right to withdraw (UK rules). The full agreement is where the conditions below live.

Will you receive the full loan amount?

Not always. Some agreements deduct an arrangement or origination fee before the money is paid out, so you receive less than the loan amount while interest and repayments are calculated on the full amount.

The wording often looks something like this:

The Loan Amount is stated in the Schedule. An Arrangement Fee, as stated in the Schedule, will be deducted from the Loan Amount before it is advanced to you. Interest is charged on the Loan Amount from the date of this agreement.

In plain English, you borrow one number, receive a smaller one, and pay interest on the bigger one. If you needed the full amount, you will be short by the fee.

What it depends on is whether the fee is deducted or added, and whether interest runs on it. In the US, the official commentary's example is a loan request of $2,500 with a $40 fee: a note for $2,500, $2,460 advanced, and an amount financed of $2,460 (US rules). The question to ask: what amount will actually arrive in my account, and do I pay interest on the fee?

What fees are charged upfront and over the life of the loan?

A loan can carry an upfront fee, a fee each year or month, and fees that only apply when something goes wrong. The agreement lists them, but not always in one place.

The wording often looks something like this:

You must pay the fees set out in the Schedule and in our Tariff of Charges as amended from time to time, including an Arrangement Fee, an annual Account Management Fee and any Default Charges.

In plain English, there are at least three kinds of fee, one of them is in a document you may not have, and the lender can change that document later.

What it depends on is which fees are in the agreement itself, which are in a tariff, and whether the tariff can change without notice. The question to ask: can I have the full tariff now, and which of these fees can change during the loan?

What do the total repayable and the repayment schedule tell you?

The stated total repayable is what the lender says you will have paid by the end, and the schedule is how that is spread. Where the agreement states a total, read that figure as given rather than working one out yourself.

The wording often looks something like this:

You will repay the Loan Amount together with interest by 36 monthly instalments of the amount shown in the Schedule. The Total Amount Payable shown in the Schedule assumes that all instalments are paid on their due dates and excludes any Default Charges.

In plain English, the total is a best case: it holds only if every payment is on time, and it leaves out the fees that apply when one is not.

What it depends on is whether the total includes the arrangement fee and any optional extras. In the US, the disclosures must state the total of payments, described as the amount you will have paid when you have made all scheduled payments, and the payment schedule (US rules). The question to ask: does the total repayable include every fee and every extra, and what does it assume?

Can you repay early, and what does it cost?

Some agreements let you repay early without charge, some charge a fee or a number of days' interest, and some allow full early repayment but not partial.

The wording often looks something like this:

You may repay the whole of the outstanding balance at any time on giving us notice. We may charge interest for a period of up to 58 days after the date of your notice. Partial early repayments are accepted only in multiples of the monthly instalment.

In plain English, paying off early is allowed, but you can be charged for up to two months of interest you would not otherwise have paid.

What it depends on is whether a charge or extra interest applies, how any rebate is calculated, and whether partial repayment is allowed. In the UK, you have the right to repay a regulated agreement early in full at any time, with any rebate the rules allow, and for an agreement not secured on land you can also repay part of it early (UK law). The question to ask: if I repay in full after a year, what exactly do I pay, and can I repay part of the loan in any amount?

What does a missed payment cost and trigger?

A missed payment costs a fee and extra interest, and in some agreements it triggers much more: a demand for the whole balance at once and a report to a credit reference agency. What notice comes first is in the default condition.

The wording often looks something like this:

If you fail to pay any instalment in full on its due date, we may charge the Default Charges set out in the Tariff, charge interest on the overdue amount until it is paid, and, after giving you any notice required, require immediate repayment of the whole outstanding balance.

In plain English, one missed instalment can turn a three-year loan into a debt that is all due now. The fee is the smallest part, and the clause does not say how long you have to put things right before the demand arrives.

What it depends on is how many days late a payment must be before each consequence. In the US, the disclosures must state any dollar or percentage charge that may be imposed for a late payment (US rules). The question to ask: what does one late instalment trigger, what notice do I get, and how long do I have to put it right?

What can the lender decide at its discretion?

A loan agreement can give the lender the right to decide things on its own: to change a variable rate, to change the tariff, to transfer the loan to another company, and to set off your other accounts against it.

The wording often looks something like this:

We may vary the Interest Rate at our discretion to reflect changes in our costs of funding or in market conditions. We may transfer our rights under this agreement to any other person without your consent.

In plain English, the rate you signed up for can move for reasons the lender decides, and the loan can end up owned by a company you have never heard of. Neither needs your agreement.

What it depends on is whether the rate is fixed or variable, and what notice comes before a change. The question to ask: which terms can you change without my agreement, and what notice will I get?

Are optional extras included in the loan?

Sometimes. A payment protection product or an insurance policy can be added to the amount you borrow, so you pay interest on it and it appears in the total repayable.

The wording often looks something like this:

The Loan Amount includes the premium for the Payment Protection Plan selected on your application. The premium is financed under this agreement and is repayable with interest over the term of the loan.

In plain English, something you may or may not have ticked on a form is now part of the loan, with interest on top, for the full term.

What it depends on is whether the extra was genuinely optional and whether it can be cancelled separately. The question to ask: what in this agreement is optional, what does each extra cost, and what happens to the loan if I cancel it?

Which schedules or documents does the agreement refer to?

A loan agreement is rarely one document: a schedule for the amounts, a tariff for the fees, general conditions for the rest. The figures that matter most, including the amount you receive and the total repayable, are often in the schedule rather than the agreement, so a schedule you do not have is a gap, not a detail. Ask for the set before you sign, and read it together.

What should you ask before you sign?

Ask the lender the questions above in writing, and keep the answers. Three of these conditions also appear in the ten sneakiest terms in savings, credit card and loan fine print, beside the ones that catch savers and card customers.

If you would like a second read of the agreement before you ask, you can review your personal loan agreement with No Sneaky Terms. It quotes every condition from your own document, explains why it matters, shows any protection elsewhere in the same document, lists every schedule or document the agreement refers to that you did not supply, and gives you the question to ask. It does not judge what you can afford, rank lenders, recommend one, work out a total cost, or tell you whether to sign. That stays your decision.

The point is not to put you off the loan. It is to make sure the number you were quoted is the agreement you understand. Laws vary by country. A local lawyer or consumer protection office can tell you exactly where you stand.