Payment Agreement letter
Definition of a Payment Agreement Letter
An agreement letter for money is a document that represents a contract to pay either in full or in installments. It also outlines all the details of the loan between the creditor and debtor. An agreement letter for money or a repayment agreement letter also outlines an installment plat to repay the outstanding balance over a specific time frame. This is especially in instances where the amount is too much for a debtor to manage payment in one installment.
At times, the agreement letter for money is referred to as an installment agreement or promissory note. An agreement letter for money is common among entities that agree to exchange money for services or goods. It is also commonly used by insurance companies that require their customers to agree to certain payment plans. Further, an agreement letter from money could be based on a transaction made by private parties. Such include family, friends and colleagues.
An agreement letter for money also plays a key role in aiding someone avoid filing a bankruptcy petition. It is a voluntary procedure where the debtor and creditor agree to compromise and settle the pending debt for less than the money owed. Drafting an agreement letter for money greatly aids unsecured creditors. The preceding is because they are guaranteed that they will get an amount of what is owed as opposed to when a person is adjudged bankrupt and considered to have no assets in the process. Thus, an agreement letter for money outlining the manner and time of settlement of the money due would be advised.
Importance of a Payment Agreement Letter
Borrowing finances ranks among the top most financial transactions in the contemporary world. This ranges from borrowing from close people to making deals with potential investors. Therefore, debt has become a close to inevitable aspect in today’s society. Further, its is tempting to rely oral promises or handshakes when agreeing on the mode and time of repayment of finances. Every debtor says that they promise to pay back.
Nonetheless, no matter how pure the intentions of the debtors are, unforeseen circumstances lead hinder debtors from repaying debts. Some debtors could also have a change of heart and fail to pay their creditors. If the preceding situations are coupled with oral payment agreements, it is hard for the creditors to realize their finances.
Therefore, an agreement letter for money is important to outline the mode and time of repayments of the loans issued out. It also protects the interests of the creditor. Further, an agreement letter for money is easy to enforce in court since the obligations are clear and the same is signed by both parties. An agreement letter for money thus holds all contracting parties accountable to the payment plan. Additionally, it serves as a reference point when a dispute arises.
An agreement letter for money also protects both parties in a number of ways. First, it defines what the exact transaction is, for instance a loan. It also identifies the parties and the sum of money involved. Further, it delineates the manner and time of repayment. For instance, the creditor may require that debtor to repay them through a cashier’s cheque and not personal cheque. If the debtor defaults, then the agreement letter for money will be the point of reference in resolving the issue.
The Elements of a Great Agreement Letter for Money
Writing an agreement letter for money could be complicated with several terms and conditions. However, only few terms are crucial and they include:
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The Amount of Debt
The foundation of an agreement letter for money is the total sum that the debtor owes the creditor. If a debtor took out a loan to use for living expenses, ten such would be a red flag. Hence and indication of one struggling to meet their basic needs. Contrariwise, if a debtor needed money for investing then there would eb the likelihood of repayment. Either way, an agreement letter for money should include an exact quotation of the money owed by the debtor to the creditor.
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Schedule for Payment and Repayment.
Another key element of an agreement letter for money is inclusion of the repayment schedule of the borrower. Parties should agree on the manner and time of payments of the loan amount. For example, creditors may request that the payments be made through direct deposits and fall due on every 10th of each month.
An agreement letter for money should include the specifics of the repayment. The creditor should also consider any preferences that the debtor has regarding repayment of the money.
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Payment Defaults
The main element of a good agreement letter for money is ensuring that the debtors make consistent installment payments. If the borrowers do not adhere to such a payment plan, creditors declare the remaining amount, interest included. Therefore, an agreement letter for money should include clear terms that govern instances of default of payment.
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Signatures
An agreement letter for money is only legally binding if both parties consent through writing. This is done through signing the agreement. Signing serves as acknowledgment and acceptance of the repayment terms in the agreement letter for money.
How to Write an Agreement Letter for Money
Once the parties agree to the balance owed, the payment terms are computed in a basic agreement. Often, there is no security that is pledged along with the incentive to pay by the debtor. The proposed payments are either free of interest or a discount on the total same.
How to write an agreement letter for money is dependent on the understanding between the debtor and creditor. An agreement letter for money often includes:
- The creditor’s identity and address
- The debtor’s name and address
- An acknowledgment of the money or balance owed
- The total amount owed by the debtor
- The interest rate on the money owed, if any
- The period of repayment
- The instructions of settlement of the money owed
- Allowance of late repayment or an extension of et time
- The governing law.
Once both the debtor and creditor sign the agreement, it becomes legally valid.
Criteria of an Agreement Letter for Money
Formal agreements and negotiations have often been used to conduct business. However, once parties agree on something, it is important to cement deals. This could be done through an agreement letter for money. An agreement letter for money officializes the deal once it is made through clearly stating the agreement’s terms.
A simple outline could be followed in writing an agreement letter for money in a certain order. The sample of a criterion of drafting the letter is outlined below:
1. Opener
This is a simple section of an agreement letter for money. It involves stating the purpose of the letter. It should be brief and include not more than three sentences. For instance: The purpose of this agreement letter for money is to outline the terms and conditions of the loan between National Bank Limited and Touching Stone Company Limited.
2. Services Rendered
This section of an agreement letter for money should include the obligations of each of the parties. For instance: National Bank Limited agrees to deposit the loan amount applied for by Touching Stone Limited upon delivery of title documents of the assets of Touching Stone Limited.
3. Fees
The section quotes the compensation amount that one party provides to another. For instance: Touching Stone Company Limited agrees to pay an installment sum of $3000 on or before the 5th of every month as agreed with National Bank Limited.
4. Additional Costs
This section of an agreement letter for money includes any exceptions to the payment terms mentioned above. It should indicate what entity will be liable for unforeseen circumstances, like sudden costs incurred due to third-party intrusions or delays.
5. Timeline
The section should outline the timeline within which all the parties should meet their obligations. The preceding especially applies in a loan agreement where the creditor provides the debtor with a certain time limit to clear the debt.
6. Payment terms
This section of an agreement letter for money should not be confused with the fees section. It provides for the entity that is bound to receive payment for the goods or services provided by a party.
However, the above criterion is not the standard one. If one wants an agreement letter for money, it is easy to locate samples of templates online. The samples could be compared to one’s purpose, terms and conditions when choosing the most suitable one. Nonetheless, in some instances, one has to document an agreement with no existing template. In such instances, a memorandum of understanding comes in handy.
An agreement letter for money could also include the basic components of a contract. Hence, offer, acceptance, consideration, and intention to create legal relations. Any contract that lacks such elements is regarded null and void.
References
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