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What Does "Loan for Use" Mean?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 April 2019
  • Copyright Protected:
    2003-2019
    Conjecture Corporation
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Typically considered a type of lend lease, a loan for use is a situation in which a recipient is entrusted with some asset for a period of time, usually with limitations on how that asset may be used. The terms of a loan for use may involve an expressed or an implied contract, depending on the preferences of the borrower and the lender involved. At a designated date, the arrangement will end and the borrower must return the asset to the owner, complying with any terms and conditions that may be related to the contractual arrangement.

One of the characteristics that tends to set a loan for use apart from other types of lending situations is that the borrower normally does not provide any type of monetary compensation to the owner. Typically, this arrangement allows the borrower to enjoy the benefits of possession for a specified period of time, while the owner sees neither an increase or liability from retaining ownership of the asset. A loan for use may provide the owner with some sort of intangible or indirect benefit. For example, if the loan for use involves lending a car to a friend for a specified period of six months while the owner is away from home, the owner may benefit by having the borrower maintain the vehicle and also provide storage for the car, an arrangement that may help limit the chances for deterioration or even theft of the vehicle.

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The typical approach to a loan for use is to prepare a contract or agreement that identifies the terms and conditions that will dictate how the borrower may use the loaned asset. Those provisions may be very exact, clearly defining the scope of the use. When this is the case, the agreement is said to be express in nature. With an implied contract, the loan for use agreement provides broad guidelines for use with the implication that certain uses are allowed even if they are not mentioned specifically in the terms. With either approach, the contract will normally have a start date that is often the date that the borrower actually takes possession of the asset. The agreement will also have an end date, which is the date that the borrower must return the asset to the lender.

A loan for use can be practical for everyone involved. For borrowers, this arrangement can be helpful in engaging in activities that would not be possible without possession of the asset and hopefully improving the circumstances of the borrower to the point that he or she can function well once the asset is returned. Lenders can benefit from placing the asset temporarily in the hands of someone who is likely to take good care of that asset, and possibly minimizing the costs of ownership for a little while. As long as the terms of the loan for use are considered equitable by both parties, and both the lender and the borrower abide by those terms, there is every chance the arrangement will be a success.

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