Transferring a loan by novation


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert
Practice notes
In-house

Transferring a loan by novation


Published by a ÀÏ˾»úÎçÒ¹¸£Àû Banking & Finance expert

Practice notes
In-house
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Novation is a means by which a lender can transfer its interest in a loan to another lender.

This Practice Note looks at what is meant by novation before discussing the advantages as compared with other transfer methods. It then looks at issues to consider including consent, documentation and impact on security.

For an overview of key issues in loan transfers more generally, see Practice Note: Introductory guide to loan transfers.

The following Practice Notes contain detailed information on other methods of loan transfer:

  1. •

    Transferring a loan by assignment

  2. •

    Selling a loan by sub-participation

For a precedent novation agreement, see Precedent: Deed of novation: for an unsecured bilateral facility agreement.

What is novation?

Under English law novation is the only way for a lender to transfer both its contractual rights and its contractual obligations to a new lender.

In a sense, referring to novation as a method of 'transfer' is misleading. Novating a loan means that the existing lender's rights and obligations are completely cancelled and discharged and the new lender

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Key definition:
Loan definition
What does Loan mean?

An advance of funds from one party (the creditor) to another party (the debtor) for a period of time. The funds can be advanced for an agreed period or be repayable upon demand. Interest is usually paid on the advance which can be secured or unsecured

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