The loan assignment contract is the document through which the loan assignment operation is carried out.
Within the contract three participants are distinguished:
The Assignor: It would be the company that transfers its collection rights in order to obtain immediate liquidity.
The Debtor: This would be the natural or legal person that must deal with the payment of the credit upon expiration. It is not usually part of the loan assignment contract however it is important for him to know when the assignment occurs and who will be the new creditor, since until he is notified he does not assume the obligation with the new creditor.
The Assignee: This is the company to which the credit collection rights are assigned. It is usually a financial entity that advances the amount of invoices, receipts, letters … etc in exchange for a commission.
Types of loan assignment contract
Within the loan assignment agreement, there are different classes, since it is a type of operation that accepts different modalities.
Perhaps the best known and used by companies today is factoring, which consists of opening a discount line of invoices with a financial entity, with which the conditions to apply for each of the invoices will be agreed from the beginning advanced.
The cost of this operation usually breaks down into:
- Commission applied for the study of the operation risk
- The commission agreed through a percentage of the amount assigned for collection
- If there is a credit advance, an annual interest rate is applied to the anticipated amount
Classes of Credit Transfer Agreement
Depending on the risk assumed by the assignee
Credit transfer without recourse: this would be the case when the assignee assumes the transfer of credit by the assignor, excluding it from any responsibility for the debtor’s default.
Credit transfer with recourse: in the event that the time of the debt expires and the debtor does not make it effective, the assignee can also go against the assignor
Depending on the time of credit payment
Credit transfer with payment on payment:
This occurs when the assignee pays the transferor once he has collected the amount from the debtor.
Credit transfer with payment on payment with a deadline:
In this case, the assignee must pay the amount to the assignor on the agreed deadline or before the date if he receives the amount beforehand.
Credit transfer with payment at maturity:
The assignee pays the transferor on the due date of the credits
Depending on the type of financing
Credit transfer with or without advance payment
It is based on whether the transferor receives advances or not on the transferred credits less an amount corresponding to the interest rate applied for the advance.
Depending on the nationality of the loan assignment
The transfer of credit is considered national if all the participants of the operation reside in the same country. It would be international when the transferor and the debtor reside in different countries.
Because the loan assignment contracts are atypical, they are usually regulated by the agreements agreed between the parties.