Legal Definitions - demand loan

A demand loan is a type of loan that the lender can require to be repaid at any time, without needing to provide extensive prior notice. Conversely, the borrower also has the flexibility to repay the loan in full or in part at any time without incurring penalties. Unlike traditional loans with fixed repayment schedules, a demand loan remains outstanding until either the lender "demands" repayment or the borrower chooses to pay it back.

• Example 1: Family Financial Assistance

  Imagine Sarah's parents lend her $20,000 to help with a down payment on her first home. They agree that Sarah should pay them back when she is financially able, but they also retain the right to ask for the money back if they suddenly face an unexpected medical emergency or need the funds for their own retirement. Sarah, in turn, can pay them back in installments or a lump sum whenever she has the funds, without any prepayment penalties. This arrangement is a demand loan because there's no fixed repayment schedule, and either party can initiate repayment or demand it at any point.

• Example 2: Small Business Working Capital

  A small manufacturing company, "Widgets Inc.," secures a $50,000 loan from a local bank to manage fluctuating inventory costs and payroll during seasonal dips. The loan agreement states that the bank can "call" the loan for repayment with 30 days' notice if Widgets Inc.'s financial performance significantly declines, or if the bank's own lending policies change. Conversely, Widgets Inc. can repay the entire $50,000 loan, or any portion of it, whenever they have surplus cash from strong sales, without incurring early repayment fees. This flexibility for both the lender and borrower makes it a demand loan.

• Example 3: Employee Relocation Loan

  A large corporation offers an employee, David, a $15,000 loan to cover relocation expenses when he moves to a new city for a promotion. The terms of the loan state that it is interest-free as long as David remains employed by the company, but it becomes immediately due and payable in full if David resigns or is terminated. David also has the option to repay the loan at any time during his employment. This is a demand loan because the company can demand repayment upon a specific event (David leaving), and David can also choose to repay it at his discretion.