As more businesses turn to borrowing money to fund their operations, it`s important to understand the terms of the loan agreement. One clause that can greatly affect the borrower is the increased cost clause.
The increased cost clause is a provision in a loan agreement that allows the lender to adjust the interest rate to account for any increased costs they may incur. This clause is often triggered by external factors such as a change in government regulations or a rise in market interest rates. When triggered, the lender can increase the interest rate to help offset their increased expenses.
While this clause may seem like a minor detail, it can have significant consequences for the borrower. For example, if the interest rate on a loan with an increased cost clause is already high, an increase could make it difficult for the borrower to meet their debt obligations. Additionally, the borrower may not have the option to refinance or renegotiate the terms of the loan with the lender.
To protect themselves, borrowers should carefully review loan agreements before signing. They should pay particular attention to the terms and conditions related to interest rates, fees, and penalties. If an increased cost clause is included, borrowers should also consider contacting their lender to discuss the potential impact if the clause is triggered.
In conclusion, the increased cost clause is an important provision to understand when borrowing money. While it may seem like a small detail, it can have significant consequences for both borrowers and lenders. Before signing a loan agreement, borrowers should carefully review all terms and conditions related to interest rates and ask any questions they may have to ensure they fully understand the potential risks involved.