What is an Unsecured Loan?
An unsecured loan is a financial loan that is backed only by the creditworthiness of the borrower and not by any kind of tangible collateral. This means that unsecured loans have a higher risk level than secured loans and that a higher credit level will likely be required to obtain one.
What is a Demand for Payment of an Unsecured Loan?
A Demand for Payment of an Unsecured Loan is issued when obligations of the loan are not honoured by the borrower and informs them that the lender expects payment on or before a certain date. It also may warn that the borrower intends to take legal action such as small claims court etc. if payment is not made.
When should one be used?
Lenders can issue a demand for payment once the terms of the loan agreement are officially in default. This may be when scheduled payments are not made or at the end of a term when the full balance should have been repaid in full. Make sure that the loan agreement is actually in default before proceeding with a demand for payment.
Where should it be issued?
Formal notices like this one should be issued to any delivery addresses listed for the borrower in the loan agreement, as well as to any more recent known addresses for any borrower(s). Lenders may also choose to issue their demand for payment to known email addresses, however, note that email and text messages are usually not recognized as sufficient notice on their own.
How should it be issued?
Since the demand notice may end up being integral in the lender’s legal ability to pursue a court order or send the matter to a collection agency, make sure to use a verifiable method of delivery such as Registered Mail or hand delivery supported by an affidavit of service. This removes any chance for the borrower to claim that the notice was never received.
What happens next?
If the demand for payment yields no response, you may consider sending the matter to a collection agency or applying for a court order against the borrower. If pursuing a court order, you will likely have to show evidence that a demand notice was issued prior to application, so make sure to keep a record of any and all notices delivered to the borrower.
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