The term “payable on demand” is typically associated with promissory notes. This term means that a debt must be paid by the person who owes it, to the person to whom it is owed, when requested. Obligations payable on demand can be used with any type of debt that does not have a defined due date.
When a lender loans money to a borrower, they can issue a callable promissory note. This is also called a demand note. The lender gives money to the borrower without a specific due date and asks the borrower to repay the money upon request. Generally, little or no notice is given to the borrower when a debt due on demand is due.
Generally, when a lender issues such a promissory note, it is for a fixed amount of money and is documented in writing. The promissory note also lists the names of both parties, as well as the interest rate charged by the lender.
A promissory note payable on demand offers benefits to both the lender and the borrower. The borrower now receives money in the form of an open loan. You cannot be made to repay the loan for a very long time. Interest accrues on the loan for the entire period that the borrower keeps the money, so the longer the borrower holds the loan, the more they will pay in interest. This type of promissory note offers a benefit to the lender as well. When it determines that it needs to recover this money, the borrower must pay. The lender receives the money when needed and is not required to give long-term notice.
Sometimes demand notes must be guaranteed. This means that the borrower must have a third party who agrees to repay the loan if he defaults. This person is called the guarantor. He is obliged to sign the promissory note to agree to pay the amount when required if the borrower does not do so.