Defaulted loans are loans on which the borrower has failed to make the required payments according to the agreed terms, typically after missing several payments over a period of time. When a loan goes into default, it means the borrower is unable or unwilling to repay the debt as scheduled, leading to serious financial and legal consequences
. Key points about defaulted loans:
- A loan defaults after a period of missed payments, often several months, during which the lender tries to collect the owed money
- Default can happen on secured loans (like mortgages or car loans) where the lender may repossess collateral, or on unsecured loans (like credit cards or personal loans) where legal action may be pursued to recover the debt
- Default negatively impacts the borrower's credit score and credit report, making it harder to obtain future credit and often remaining on credit reports for up to six years
- The lender may close the account, send the debt to collections, or take legal steps to recover the loan amount
- Borrowers can sometimes avoid default by communicating with lenders to modify payment terms or arrange repayment plans
In summary, a defaulted loan is one where the borrower has failed to meet payment obligations for an extended period, triggering lender actions such as credit damage, collections, and possible loss of collateral
