What is a Collateral Backed Loan?
A collateral backed loan is a financial loan that is backed by tangible goods such as a vehicle, boat, or other personal property. The collateral is put up as a way for the lender to have the ability to repossess or have title against the collateral if the terms of the loan are not honoured by the borrower.
What is a Demand for Payment of a Collateral Backed Loan?
A Demand for Payment of a Collateral Backed Loan informs the borrower that the lender intends to take action if the arrears or full balance are not paid on or before a certain date. The demand may warn that the lender will take action against the collateral or otherwise if the terms of the demand are not met.
When should one be used?
Lenders can issue a demand for payment once the terms of the security 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 security 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 security 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 hire a bailiff to have the collateral repossessed, 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 proceeding towards hiring a commercial bailiff to seize the goods. Depending on the value of the collateral, hiring a collection agency or taking other legal action may be more fruitful since the cost of seizure and sale can become rather costly, especially if the goods are not easily accessible or their location is not definitively known.
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