On Demand

The term 'On Demand' signifies an obligation that must be fulfilled upon request, often used in financial settings such as notes payable and demand notes.
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Definition

In financial terminology, “On Demand” refers to an obligation or repayment that must be fulfilled upon the request of the holder or the payee. This term is commonly used in reference to instruments like notes payable and demand notes, where the amount owed must be paid immediately when the holder requests it.

A note payable on demand is a type of financial instrument that requires repayment as soon as the holder requests it. If no specific due date is mentioned, this note is referred to as a demand note.

Examples

  1. Demand Note Example: Smith loans $5,000 to Jones with a demand note. Jones must repay the loan whenever Smith requests the repayment.

  2. Note Payable on Demand Example: A small business takes a loan from a bank with a clause that specifies the loan is payable on demand. The business must repay the loan immediately when the bank requests it, even if it is not past the typical monthly payment date.

Frequently Asked Questions (FAQs)

What is the difference between a demand note and a note payable on demand?

A demand note is a type of note payable on demand but is specifically used when no due date is mentioned. Both require repayment upon request.

Can interest be charged on a demand note?

Yes, interest can be charged on a demand note, but the terms must be specified in the agreement.

What are the advantages of having a note payable on demand for lenders?

Lenders benefit from the flexibility and security of being able to demand repayment at any time, which reduces the risk of default.

Is there any notice period before the amount is demanded in these notes?

These notes usually do not require a notice period; repayment is due immediately upon the lender’s request, unless otherwise specified in the terms.

What happens if the borrower is unable to pay when the amount is demanded?

If the borrower cannot repay the amount on demand, it can lead to default, and the lender may take legal action to recover the owed sum.

  • Promissory Note: A written promise to pay a specific amount of money at a certain date or on demand.
  • Loan Agreement: A contract between a borrower and a lender outlining the terms and conditions of the loan.
  • Maturity Date: The date on which a loan or financial instrument becomes due for repayment.
  • Interest Rate: The proportion of a loan charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Online References

Suggested Books for Further Studies

  • “The Basics of Financial Derivatives: Markets, Products, and Applications” by Robert W. Kolb
  • “Fundamentals of Corporate Finance” by Stephen A. Ross, Randolph W. Westerfield, and Bradford D. Jordan
  • “Principles of Corporate Finance” by Richard A. Brealey, Stewart C. Myers, and Franklin Allen

Fundamentals of On Demand: Finance Basics Quiz

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