Q:

What is loan drawdown?

A:

Quick Answer

According to Business Dictionary, a loan drawdown is when someone withdraws funds from a loan facility. Practical Law says lenders often allow drawdowns to give money advances to borrowers and set interest rates based on these short borrowing periods.

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Full Answer

After confirming a mortgage, some lenders agree to give borrowers extra money in the form of a drawdown loan, according to Practical Law. This process does not require another application for the borrower to fill out before receiving the money.

The Hongkong and Shanghai Banking Corporation says the process starts with talking to a bank or other lender about loan options. Once both parties select the best option, the lender usually looks over the borrower's financial history to determine the likelihood that the loan will be repaid on time. The lender sends the borrower a letter of approval, if the borrower's history is accepted. The letter details the terms of the loan, including any interest payments. If both parties agree to the terms, they each sign a contract legally binding them to the agreement.

The loan drawdown happens after both parties agree to a loan. The drawdown is when the lender processes the money and deposits it in the borrower's bank account. The borrower pays off the loan amount in increments, usually with interest, until the drawdown amount and other term agreements are satisfied.

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