What is a Default?

A default is when the borrower fails to repay a loan based on established criteria. When a borrower takes out any debt, they are obligated to pay the money that's owed to the lender on the correct schedule. By not paying, the borrower is failing to meet the loan requirements.

What happens during default?

Outstanding interest continues to compound when the borrower defaults. If the borrower is not paying the minimum payment required, the borrower will be served with a Notice of Default, which is a formal document outlining that the default happened. The outstanding balance could be taken to court for a summary judgement and/or could be sold to collections.

Defaults can impact a person's credit score in addition to losing out the underlying collateral and down payment.

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