Delinquency refers to past-due payments on loans, mortgages, credit cards, and delayed dividend payments on stocks and bonds. Delinquency related to consumer debt can negatively affect credit ratings and make it difficult to secure credit in the future.
Delinquency is a term used to identify a situation in which a payment of some type of financial instrument is due. The term can apply to payments owed on bank loans, mortgages, or even certain types of shares. Unless there are extenuating circumstances, it is generally advisable not to allow obligations to expire.
As applied to loans, mortgages, and credit card payments, delinquency refers to the past-due amount on the account. For example, if a borrower is three months behind on a mortgage payment, the delinquency will equal a total of three months of payments. Some lenders will also include additional penalties or interest charges applied to the past due amount as part of the delinquency, although others treat those amounts as separate items on the account.
When associated with stocks, delinquency typically has to do with a delayed dividend payment on an investor’s stock shares. In some cases, this can be planned for, such as with cumulative preferred stock options. With these types of stocks, the idea is to delay the payout of dividends until some specific time in the future, even though dividends are calculated at regular intervals. The balance of those calculated dividends is recorded in the shareholder’s account and shown as an open item until the disbursement is finally made.
A similar process can also take place with bond issues. Many bonds are set up to delay paying interest until the bonds reach maturity. Over the life of the bonds, unpaid interest can accumulate and is retained by the issuer of the bonds for the holder. Once the bond matures, the bondholder remits the interest, along with the original investment in the bond issue, to the bondholder and the transaction is considered complete.
While delinquency with some types of investment opportunities is simply a means of keeping track of payments due to the investor at some specific time in the future, delinquency related to consumer debt is another matter. Many lenders will only allow accounts to become past due for a certain period of time before action is taken to collect late payments or to declare the borrower in default. If an individual exhibits a continual pattern of late payments on loans and similar debts, his or her credit rating is negatively affected. This situation in turn makes it very difficult to secure credit in any form in the future, until the consumer has demonstrated over time that he or she is able to avoid default by paying all debt obligations on the dates specified by each creditor.
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