Finance Dictionary
Default
Definition
Failure to fulfill an obligation, especially to repay a loan or appear in a court of law.
Deep Dive
In its most common financial context, default refers to the failure to fulfill the terms and conditions of a debt obligation, most notably by failing to make required payments on a loan. This breach of contract can occur in various forms, from missing a single payment (leading to delinquency) to completely ceasing all payments. Default triggers serious consequences for the borrower, including significant penalties, damaged credit ratings, and potential legal action or asset seizure by the lender, such as foreclosure on a mortgage or repossession of a vehicle.
Examples & Use Cases
- 1A homeowner defaults on their mortgage by consistently missing monthly payments, leading to foreclosure proceedings.
- 2A student loan borrower defaults when they fail to make any payments for a specified period (e.g., 270 days for federal loans).
- 3A company defaults on its corporate bonds by failing to meet interest payments or by violating specific covenants outlined in the bond indenture.
Related Terms
DelinquencyForeclosureBankruptcy