Past-due assets are loans that show an increased risk of default, usually after 90 days of no payment. Lenders work with borrowers to prevent default before taking legal action. Late payments do not necessarily constitute delinquent assets.
Also known as past-due loans, past-due assets are loans that demonstrate an increased risk of default, usually due to changes in the borrower’s financial circumstances. Generally, any loan that passes the 90-day mark without any payment being made on the outstanding balance will be classified as a delinquent asset. Since lenders rely on the interest earned on these loans as part of their income stream, steps are usually taken to work with the borrower in an attempt to prevent default from occurring.
It is important to note that if a borrower misses a monthly payment due date by a few days, this does not constitute a need to declare the loan as a delinquent asset. Many lenders charge late fees that are added to the amount owed, effectively allowing that late payment to generate income for the recipient of the payment. If the borrower is a few days late on the loan for several consecutive months, the lender may be somewhat concerned and see the loan as an increasing risk, but not enough to consider it delinquent.
While there are exceptions, many lenders only classify a loan as a delinquent asset when the borrower has not attempted any type of debt payment for a minimum of three consecutive months. For example, if the borrower lost their job and was unable to make full payments, but arranged to pay the interest while looking for work, the lender would still consider the loan to generate some form of return. If the borrower makes no effort to work with the lender to arrange some type of payment on interest or a portion of the principal, and three consecutive monthly installment dates pass with no payments remitted, then the loan is officially Active.
Since the next step beyond declaring a loan a non-performing asset is to collect and possibly file a lien on the debtor’s assets, lenders will often try to work with debtors experiencing a temporary financial crisis. . Both collection efforts and legal action through a court system cost the lender time and money, and are typically not pursued until all other options have been exhausted. With proper handling and the good will of both the debtor and the lender, it is often possible to prevent the situation from escalating to a critical level and allow the relationship to return to a state of mutual benefit.
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