To be "in default" on a loan means that the borrower has failed to make the required payments-either interest or principal-according to the terms agreed upon in the loan contract. This failure typically occurs after missing payments for a certain period, which varies depending on the loan type and lender policies
. Key points about loan default include:
- Timing : Default usually happens after several missed payments over weeks or months, not just a single late payment. For many loans, payments become officially late after a grace period (often around 30 days), and default may be declared after 90 to 120 days of nonpayment
- Consequences : Defaulting can severely damage the borrower's credit score, making it harder to obtain credit in the future and potentially increasing interest rates on new loans. The default remains on credit reports for up to seven years
- Legal and Financial Repercussions : For secured loans (backed by collateral like a house or car), the lender can repossess or foreclose on the asset. For unsecured loans, the lender may pursue legal action, including suing the borrower, wage garnishment, or placing liens on assets
- Collection Efforts : After default, the debt may be sold to collection agencies, which can aggressively seek repayment
- Other Impacts : Default can affect employment prospects, housing opportunities, insurance premiums, and the ability to open bank accounts
In summary, being in default on a loan means you have not met your repayment obligations for a sustained period, triggering serious financial and legal consequences as outlined in your loan agreement and governed by law
