What you need to know about non-performing loans

What you need to know about non-performing loans

A non-performing loan is a common term using in the banking and financial services industry. There several contexts on how the term is used depending on the financial market or country involved.

For every debt borrowed or every loan taken, there is an appointed date of payment and refund, the date is an agreement or like a vow between the debtor and the creditor but when the debt has not been paid at the scheduled time its start becoming a threat of non-performing loan.

Non-performing Loan (NPL) is however when the debtor has not made his scheduled payments for at least 90 days and it is proving to be in default or already in default. When a loan is nonperforming, there is a high tendency the payment will not be made in full if it’s going to be repaid.

As time goes by, if the debtor starts making payment on the non-performing loan, even if it’s not full but subsequent payment, the debt becomes a re-performing loan.

As it is known that it is not only individuals that get loans but also government and institutions.

An individual cannot sell his non-performing loan but will possibly use the collateral (such as home loan, vehicle loan, etc.) that has been initially dropped to replace the debt if it was not paid back but an institution can sell the nonperforming loan to other investors in order to clean up their balance sheet; Though this type of transaction can be very risky since they have financial implication.