Most loan contracts define clearly how the proceeds will be used. There is no distinction made in law as to the type of loan made for a new home, a car, how to pay off new or old debt, or how binding the terms are. The signed loan contract is proof that the borrower and the lender have a commitment that funds will be used for a specified purpose, how the loan will be paid back and at what amortization rate. If the money is not used for the specified purpose, it should be paid back to the lender immediately.

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