A contract of loan is entered into when a creditor lends a sum of money to a borrower for an agreed purpose.
Loans involving a substantial amount must be made by a public deed. The parties must state the intended use of the funds, the method and period of repayment, and any applicable interest rate. The debtor may secure the loan by offering assets as security, and the lender may outline events of default under which these guarantees may be enforced. When the lender is a bank, these details are stipulated in a sanction letter, which confirms the bank’s approval of the loan.
During the term of a loan, the parties may also agree to enter into a datio in solutum, whereby instead of repaying in money, the borrower transfers immovable property of equivalent value to settle the outstanding balance.
