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Financial Agreement

A Financial Contract Number Is What?

Do you know what a financial contract is? If not, then read this blog to understand what financial contracts are and how they are beneficial.

A financial contract should be something that helps keep the funding process straightforward. Discover more about smart contracts or agreements in this blog. A loan agreement among both participants, also known as a finance contract, comes with several benefits to the shareholders. Even in the case of a dispute, writing a good and flawless finance agreement can provide the parties involved with security and efficiency. It helps one to prevent misapprehensions or conflicts related to borrowing or lending. At times, these agreements are also termed “smart contracts. Basically, a smart contract is a set of commitments agreed upon by stakeholders that are automatically carried out when specific criteria are met. The term “financial contract” refers to a wide range of instances. Let’s learn more about it in detail below.

What Is a Financial Contract?

A financial contract, often referred to as a financial derivative, is a bilateral agreement that stipulates the terms and conditions under which financial transactions take place. In India, these contracts are governed by various financial regulations and standards set by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

What Exactly Are These Agreements All About?

A personal loan or financial contract, which is a legally binding agreement, can be entered into with an official lender, such as a bank or credit union, or in a more informal situation, such as with a friend who is lending you money. It basically says (among other things):

  • How much money are you borrowing?
  • When you promise to repay it,
  • Depending on the scenario, any fees and/or penalties you promised to pay (such as if you prepay the debt or become delinquent) will be deducted.

A finance agreement between two or more parties is generally written under diverse scenarios. Assume that a lender draughts an agreement with the company to build a restaurant. The organization can then make use of the proceeds from customers to repay the debt, as stipulated in the checklist of finance contract or agreement. However, the process of developing finance contracts is indeed complex. It requires the consideration of multiple factors. Everything is covered extensively in the below-mentioned sections.

Documents Needed to Draft a Financial Contract

  • Complete the petition for a loan application and include one passport-sized photograph.
  • Identity proof for the applicant: A copy of a passport, voter ID, PAN card, driver’s license, and MAPIN card is required.
  • POA (Proof of Address): Telephone bills, a ration card, a rental contract, electricity bills, a business license, a passport, and a receipt of sales tax.
  • A copy of a passport, a voter’s ID, or a PAN card are all adequate forms of proof of age.
  • Financial records: a document outlining IT recoveries over the preceding two years and the most recent 6-month bank records and profit and loss statements, along with an audited balance sheet by a Chartered Accountant for the previous two years.
Need a robust finance agreement? We’ve got you covered. Start here with Financial Terms and Conditions.

Checklist of Finance Contract Requirements:

  • Parties Involved: Clear identification of the parties entering into the contract.
  • Principal Amount: The main sum borrowed or invested.
  • Interest Rate: Specified percentage or rate of interest.
  • Duration: Period of the contract.
  • Repayment Schedule: Dates and amounts of repayments.
  • Collateral: Any security provided against the loan.
  • Default Provisions: Terms for any breach of contract.
  • Governing Law: Stating the jurisdiction and laws governing the contract.
  • Dispute Resolution: Measures in case of disagreements.
  • Signature: Both parties should duly sign the contract.

What Should a Financial Contract Include?

Although each finance pact will still have distinct divisions based on various agreements, the specifics mentioned below will be predominant in a classic finance agreement.

The following information should be included in a personal financial contract:

  • The lender’s and borrower’s names and addresses;
  • If applicable, information about the loan cosigner; if
  • Interest rate, if applicable;
  • Annual percentage rate (APR), if applicable;
  • Amount borrowed
  • The date the loan was taken;
  • date of anticipated repayment;
  • Payment terms, like whether the loan will be compensated on demand, in installments, or in one lump sum, as well as payment amounts and dates;
  • If applicable, penalties for paying off the loan early (also known as penalty fees) payment methods, such as a check or cash;
  • Payment approvals, including those required for fully automated withdrawals from a bank account,
  • Information on how conflicts will be taken into account and/or settled;
  • Penalties and repercussions for late or non-payment
  • Options for modifying the loan’s provisions
  • signatures of both the borrower and the lender, and the date of agreeing on the financial contract.

Steps to Take When Drafting a Financing Contract:

  • Research the Law: Ensure compliance with RBI, SEBI, and other relevant regulations.
  • Define the Purpose: Clearly state the purpose of the contract.
  • Include Essential Elements: Make sure all vital points from the checklist are incorporated.
  • Use Clear Language: Avoid ambiguity; the terms should be transparent.
  • Review and Revise: Regularly revisit and modify to adapt to changes.
  • Legal Consultation: Have a legal expert review the contract for compliance and soundness.

Why Is Such an Agreement Beneficial?

It’s a good idea to propose an official agreement when loaning money to family or close friends to prevent misunderstandings that could impact your relationship. While it may seem to be too much for small amounts that can be paid off with your next paycheck, you must consider doing the documentation for larger private or unsecured loans that will take more time to repay.

How to Create the Perfect Financial Contract?

While financial firms have been using frameworks to generate personal loan contracts, if you’re going to borrow from someone else, you’ll have to generate your own.

You may feel the need to hire an attorney to guide you through the process, based on how complex your individual circumstances are. The do-it-yourself strategy, on the other hand, is completely acceptable and legally sound. Once you’ve attained an agreement on the terms, you may like to have the lending financial contract signed and sealed or have a third party act as testimony during the signing.

It’s a smart idea to get together not only to fix the flaws but also to devise a backup plan in the case of a catastrophe. This can include responses including:

  • What happens if the borrower has been unable to make a payment?
  • What charges and fines are you both prepared to accept?
  • What happens if the borrower has now become incapacitated or ends up dead?

Vakilsearch is the right option for those looking to write a finance agreement. We offer a completely legal finance contract that is beneficial to all parties. Contact us right away and let Vakilsearch’s team takeover and offer you the right format for a financial contract. The best thing about us is that you will get two free sessions of reiteration to incorporate the document’s modifications.


There are numerous free or low-cost templates available online to assist you in drafting a personal loan agreement. While not all personal loan agreement templates will be applicable to your situation, they can serve as a guide and ensure you don’t overlook important details. However, as we have mentioned above, if you wish to keep all the hassles at bay while draft a financial contract, getting in touch with the experts of Vakilsearch would be the best thing to do.

FAQs on Financial Contract

What is an example of a financial contract?

An example is a home loan agreement where a bank agrees to lend a certain amount to a borrower, and in return, the borrower agrees to repay the amount with interest over a specified period.

What are the different types of financial contracts?

Forward Contracts: Agreements to buy/sell an asset at a future date for a price agreed upon today. Futures Contracts: Standardised forward contracts traded on an exchange. Options: Contracts giving the right, but not the obligation, to buy/sell an asset. Swaps: Agreement to exchange cash flows or assets/liabilities. Bonds: Debt instrument with terms of interest payments and the return of principal.


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