Defaulter, meaning a person or entity that defaults on their legal obligations to repay an outstanding loan, is an important concept in banking and finance.
In this article, we’re going to explain what a defaulter is, what the consequences of defaulting can include, and provide answers to common questions on the topic.
This article is part of our free series on banking and financing, including how to find an overseas mortgage to open remotely around the world.
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Table of Contents
A defaulter, meaning a borrower that is unable or unwilling to meet their repayment obligations, can default on a secured loan (e.g. a mortgage) or unsecured credit (e.g. a credit card). Defaulters can include both natural persons and entities.
Not surprisingly, defaulting on your financial responsibility to repay the debt will negatively impact your credit score and credit report. If the original lender is unable to satisfy their collection goals, your debt may be passed to a collections agency. In most cases, when a collections agency is unable to secure repayment, further legal action is pursued.
Depending on the jurisdiction, type of loan, and conditions of the loan, the lender may be able to sue the borrower for involuntary bankruptcy. That said, bankruptcy proceedings are only possible in the case of default and would not occur in the event of delinquency, which refers to a missed or delayed payment in a borrower’s payment history.
What Is an Example of a Defaulter?
An example of a defaulter is an individual who is unable or unwilling to pay their outstanding credit card bill for a period of six months. After six months of non-payment, the borrower would be considered seriously delinquent and their status is usually changed to default. At this time, the credit card issuer may “sell” the outstanding balance to a collections agency, which would then pursue the cardholder for repayment.
Another example of a defaulter is an individual who obtains a mortgage for the purpose of buying a home. Depending on the country, the lender will typically begin foreclosure proceedings after the borrower misses between two and five consecutive monthly mortgage payments.
Who Is a Defaulter In a Bank Loan?
The defaulter on a bank loan is the original borrower of the loan who has agreed to meet certain repayment obligations and has failed to do so. Depending on the type of loan (e.g. mortgage vs credit card) the lender may initiate legal proceedings or sell the loan to a collections agency for collection.
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Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into the meaning of defaulter. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Does “Listed As Defaulter” Mean?
“Listed as defaulter” refers to being listed by a financial institution as someone who previously defaulted on a loan. Not surprisingly, financial institutions will not approve future loan applications from individuals who they have listed as defaulters due to defaulting on previous loans.
What Is the Simple Meaning of Defaulter?
The simple meaning of “defaulter” is a person or entity that is unable or unwilling to meet their repayment obligations.
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