Delinquency

Delinquency refers to the state of being unable to repay loan payments when they are due. To be more specific, being late by two or three months can be considered delinquency.

Once a borrower becomes delinquent, the financial institution, which approved the loan request makes note of such details in the borrower’s record and also informs the credit reporting agencies (usually takes place when payments are late by 30+ days). Such information may be made available to other lending institutions, because this lowers the borrower’s credit score.

Having a lower credit score will greatly affect the borrower’s ability to secure loans in the future. It is likely that a borrower with a lowered credit score will have difficulty or be unable to secure a loan until his credit score goes up again. If he is still granted a loan, there is a big probability that the conditions governing the loan will be stricter or that his annual percentage rate (APR) will be prohibitively high.

Delinquency covers a wide variety of loan types. Should the borrower be delinquent on payments for a mortgage loan, it is possible that continued delinquency could lead to foreclosure of the property. This is a very serious problem, given the probability of leaving the borrower homeless.

Such serious consequences may be avoided by veering away from delinquency altogether. Making payments in a timely manner is the most important habit to develop in order to avoid becoming delinquent. Being even just one day late may already be put on record as a delinquent action, so paying early or on the due date itself will prove favorable to the borrower.

Should a borrower be unable to meet payment obligations on time, notifying the lending agency early on might be helpful. By giving the lender the appropriate information in advance, the borrower may be creating an opportunity for both entities to work together and arrive at a favorable and realistic solution, thus avoiding delinquency.

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