QandAs: Loans

What is Loan Default?

Answer:
When a person borrows

money, he or she typically signs a loan agreement, which states the terms of the loan. This contract includes the interest rate, monthly payments, and length of the loan. If the borrower fails to repay a loan according to the terms agreed upon, he or she is in loan default.

Defaulting on a loan can have many negative consequences. It will probably affect the borrower’s ability to obtain future loans, and have a significant effect on his or her credit rating. In addition, if the loan was with a government agency, the borrower’s wages may be garnished until the loan is paid in full. Private lenders may take legal action against someone in loan default.