Loan

A contract of loan of money involves a lender lending a sum of money to a borrower for an agreed purpose.

A loan of a great sum of money must be made by a public deed. The parties must specify the intended use of the money, the method and term of repayment, and interest rate, if any. The borrower may offer assets as security for their obligation to repay the loan, with interest if applicable, and the lender may define events of default under which these guarantees may be enforced.

If the lender is a bank, all these particulars are included in a letter signifying the bank’s approval of the loan in principle, known as a sanction letter. A copy of this letter must be forwarded to the notary so that its terms may be incorporated into a public deed, the signing of which marks the bank’s formal granting of the facility.

As the loan is being repaid, or once it has been repaid in full, the borrower may request the lender to release any assets securing the loan.

In the case of a past loan that is still being repaid, where the lender requires additional security, the parties may appear on a deed of constitution of debt by which the existence of the debt is acknowledged and the additional security granted by the borrower.

During the term of a loan, the parties may also agree that, instead of the borrower repaying the lender in money, a contract of ‘datio in solutum‘ is entered into, by which the borrower transfers to the lender immovable property of a value equal to the outstanding balance of the debt.