A microlending agreement is drawn up when a lender offers to lend a consumer money and the consumer agrees to accept the terms of the repayment. When the consumer signs the contract he or she is agreeing to pay back the money and the interest according to the terms in the contract.

The consumer should always keep a copy of the contract and all the forms that have been signed. The contract must include the following information and details:

• The amount of the loan
• The interest rate
• Amounts repayable
• The number of instalments
• If there is insurance, the type of insurance, the name of the insurer and the amount that may be included
• The period within which the loan must be repaid
• The penalties that will be charged if you miss a repayment (also called defaulting on your payments)

Any amount that is deducted from the loan amount reduces the principal debt.