The right to demand repayment of loans can be assigned to other eligible assignees under the loan agreement. In this case, the original lender (the assignor) delegates the right to receive all payments on the loan to a new lender (the assignee), who bought this right. This procedure is called assignment and can be applied to problem loans and regularly repaid ones.

Parties Participating in the Assignment of Loan

  • The borrower whose loan is being assigned;
  • Assignor ― the original lender from whom the borrower took the loan;
  • Assignee ― a new creditor to whom the borrower must return the borrowed funds.

Important Conditions of Loan Assignment

  • When assigning a loan, the assignee cannot demand a larger amount from the borrower than what they owe to the previous lender. This applies to both the principal debt and interest payments. Therefore, if all the contract terms are met, the borrower will return exactly the amount they had to pay to the original lender.
  • Not every loan can be assigned. If the agreement between the lender and the borrower contains a provision prohibiting assignment, this procedure cannot be applied to the loan.

In What Cases Can Loan Assignment Occur?

There can be many reasons why a creditor may assign a loan to an assignee. Here are a few of the most common cases when a borrower has to deal with a new lender.

Problem Loans

If a borrower does not repay the loan for a long time, does not pay interest, and avoids contact with the creditor, their debt may be assigned to collectors. In this case, the creditor understands the likelihood of returning their money from the debtor is low. Therefore, they prefer to receive at least part of the amount from the collectors, which is better than nothing.

Bank Liquidation

If the bank from which the borrower took out a loan becomes bankrupt, this does not mean that the debt will be forgiven. When a bankrupt bank is liquidated, all its assets are sold. Issued loans are also classified as bank assets, so the right to receive money from the borrower can be purchased by another party. In this case, the debt is assigned and some or all of the bank’s borrowers are transferred to the new lender.

Business Solution

Today, many companies prefer to sell goods on credit to attract more customers. For example, you can purchase expensive equipment, jewelry, and even a car with a loan from the seller. Subsequently, the seller may assign the loans to the bank for various reasons. For example, they will need additional funds to expand their business or will want to close their current business project and invest money in another, etc.

In all these and other cases, the borrower will repay the loan to the assignee. If they had previously paid all their regular loan payments, nothing would change for them. However, if they avoided paying interest and did not intend to repay the debt, assigning the loan may become a real challenge ― debt collectors will demand loan repayment much more actively than the original creditor did.