Questions and Answers

A loan has a “demand feature” if the note provides that the balance is payable “on demand.” This means the borrower must pay when the lender demands payment. The lender can demand payment at any time, for any reason, or for no reason at all.

An “acceleration clause” is different. Such a clause allows the lender to accelerate the payment schedule (speed it up or make all payments due immediately). But the lender’s authority to do this is subject to certain conditions, the primary one being that the borrower is in default, either for missing payments or causing the loan to be questionable for some other reason.

From a disclosure perspective,  Regulation Z allows creditors to base other disclosures, such as the finance charge and total of payments, on an assumed loan term of one year where the loan is actually payable on demand (since a demand loan has no established term on which to figure these disclosures). If the creditor makes such an assumption, that assumption must also be disclosed along with the disclosure that the credit document contains a demand feature.