Question

Why would a lender induce an early repayment? Can the borrower reject the lender’s request? Why?

Does default occur only when borrowers fail to make scheduled loan payments? Why?

Answer 1

Lender can surely induce an early repayment. Bank and borrower enters into an agreement which is called as loan agreement. Under the loan agreement it may include various clause under which lender has right to call back the loan:

1. Default in covenants (Affirmative, Negative, Financial)

2. Fall of credit rating

3. Non Acceptance of revised interest rate

4. Not providing required information or documents

However, lender can not reject the lender's request. Mostly in the loan agreement there is cure period provided for every such default. If during the cure period the default is rectified, then the lender can request for revocation of early repayment demand of the lender

Default not only occurs when lender fails to make schedule payment but also occurs when lenders does not pay the amount when lenders call for early repayments.