What Is a Personal Loan Contract?

A loan contract is a form of economic contract. That is, the lender will deliver the currency to the borrower for use, and the borrower will return a certain amount of currency and its interest to the mutual rights and obligations relationship determined on the loan in accordance with relevant regulations. In order to ensure its own security, the lender requires that the borrower's financial condition (especially its liquidity) during the term of the loan contract is at least comparable to that at the time the contract was signed. The clauses listed in the loan contract to protect the interest of the lender are called Protective Covenants. The loan contract itself only indicates that the lender has the legal authority to take action in the event that the borrower violates the terms of the contract. Otherwise, the lender will be bound by the loan conditions it has promised and will not wait until the contract expires before taking corrective action. ^[1]

Loan contract

The borrower shall use the loan in accordance with the agreed purpose and shall not be used for illegal purposes. The loan purpose specified in the loan contract must not violate state restrictions on operations,

The reasons for restricting the use of loans are: first, if the borrower uses the loan for illegal purposes, and if it violates the prohibition of national laws and administrative regulations, the loan contract will be invalid. Even if the lender does not know the illegal purpose when using the loan, once the lender knows the illegal purpose, the borrower must be prevented from continuing to withdraw money. Second, the use of loans is restricted to ensure the source of repayment funds. If the loan is not used according to the purpose of the agreement, the borrower may lose its ability to repay due to improper operation. Furthermore, the internal operating policies of lenders may have restrictions on the industries or departments that issue loans, and government rules and regulations sometimes have similar regulations. Finally, the use of loans may also be restricted to the interests of third parties. For example, in export credit projects, the use of loans is limited to specific payment targets. ^[2]