A situation in finance where a debtor/ obligor fails to fulfill its obligations under the agreement/ contract/ arrangement, etc. In a loan agreement, default denotes a borrower’s failure to make required interest or principal repayments on the loan to the other party (the lender/ creditor). In reality, persons (both legal or natural), or even sovereigns, can run into a state of default on their debt obligations. Defaults impact a defaulting party’s credit score and ability to get financing from the market in the future.
In general terms, default is a breach of a contract or agreement which arises when one party fails to meet or uphold its contractual duties/ obligations. Default may denote the complete or partial failure to make contractual interest or principal repayments on a debt (a loan, a security, etc). Indications of such potential occurrences should be identified and implemented by a creditor entity in a way that guarantees a timely detection of credit events that precipitate disrupted cash flows or eventual cash shortfalls.
Default events (events of default), common in lending agreements or debt instruments, prompt lenders to scrap the facility and/ or opt for acceleration where all amounts a borrower owes would immediately fall due and become payable or payable on demand.
Comments