Site icon BankBazaar – The Definitive Word on Personal Finance

What is a Defaulted Loan?

When a loan is given by a lender along with it some repayment schedules are also laid down. The repayment schedule may be weekly, monthly or annual. If any of these payments are missed, the loan is said to be defaulted loan.

Any defaulted loan will be affecting the credit history of the person who has taken the loan negatively. This might reduce a person’s credibility to obtain any further credit from any financial institutions or banks. On default of the payments the lender has all rights to move against the borrower. The lender could seize the securities or mortgages submitted for the loan to recover the amount he/she has lent to the borrower.

For example for a car loan taken from a bank, the car is pledged to the bank until the car loan is repaid.  In case of the default of the loan, the car purchased by taking the loan could be taken over by the bank to recover the loan amount. Similar is the case with the home loan. House bought or constructed with the loan amount is pledged to the bank for obtaining the loan. The bank could be seized to recover the defaulted home loan.

Exit mobile version