Which statement best describes a contract for loan of money?

Which statement best describes a contract for loan of money?

• A. Lender passes ownership of money to borrower and the borrower promises to repay the sum at a future date, with or without interest.
• B. Borrower promises to repay the sum at a future date, with or without interest.
• C. Lender retains ownership of money and the debt is owed.
• D. The borrower receives a gift of money with no obligation.

Answer: (A)

A loan of money is a contract where the lender gives money to the borrower and the borrower agrees to repay that amount later, possibly with interest. The essential point is the transfer of funds from lender to borrower combined with a repayment obligation. The statement that the lender passes ownership of money to the borrower and the borrower promises to repay the sum at a future date, with or without interest, best captures both aspects: the actual transfer of funds and the obligation to repay. If we only say the borrower promises to repay, that describes an obligation but doesn’t confirm that funds were advanced by the lender. If the lender were to retain ownership of the money and only the debt is owed, it would not reflect the actual transfer of funds to the borrower. A gift with no obligation has no repayment requirement, so it cannot be a loan.

A loan of money is a contract where the lender gives money to the borrower and the borrower agrees to repay that amount later, possibly with interest. The essential point is the transfer of funds from lender to borrower combined with a repayment obligation. The statement that the lender passes ownership of money to the borrower and the borrower promises to repay the sum at a future date, with or without interest, best captures both aspects: the actual transfer of funds and the obligation to repay.

If we only say the borrower promises to repay, that describes an obligation but doesn’t confirm that funds were advanced by the lender. If the lender were to retain ownership of the money and only the debt is owed, it would not reflect the actual transfer of funds to the borrower. A gift with no obligation has no repayment requirement, so it cannot be a loan.