What Is A Nonperforming Loan NPL
What Is A Nonperforming Loan NPL
What Is A Nonperforming Loan NPL
A nonperforming loan (NPL) is the sum of borrowed money upon which the debtor has not made
his scheduled payments for at least 90 days. A nonperforming loan is either in default or close to
being in default. Once a loan is nonperforming, the odds that it will be repaid in full are
considered to be substantially lower.
Nonperforming Asset
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Video Definition
A nonperforming asset is a debt obligation where the borrower has not paid any previously
agreed upon interest and principal repayments to the designated lender for an extended period of
time. The nonperforming asset is therefore not yielding any income to the lender in the form of
principal and interest payments.
Problem Loan
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In the banking industry, a problem loan is one of two things; it can be a commercial loan that is
at least 90 days past due, or a consumer loan that it at least 180 days past due. This type of loan
is also referred to as a nonperforming asset.
BREAKING DOWN 'Problem Loan'
The subprime mortgage meltdown and 2007-2009 recession led to a rise in the number of
problem loans that banks had on their books. Several federal programs were enacted to help
consumers deal with their delinquent debt, most of which focused on mortgages. Problem loans
can often result in property foreclosure, repossession or other adverse legal actions.
Renegotiated Loan
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The result of an agreement between a borrower and a lender to modify a loan by taking a loan
that a customer was having difficulty paying and turning it into a loan that the customer can pay.
The loan may be modified by lowering the interest rate, changing it from an adjustable-rate loan
to a fixed-rate loan, lengthening the repayment period or forbearing principal.
A renegotiated loan can benefit both borrowers and lenders. The borrower is able to maintain his
or her credit rating, avoid bankruptcy and retain use of the asset that is tied to the loan (e.g., a
house). The lender, while it may see less benefit (i.e., less interest income) from a renegotiated
loan, retains the customer's business and may have better profits than it would by allowing the
borrower to default.
Credit Crisis
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A crisis that occurs when several financial institutions issue or are sold high-risk loans that start
to default. As borrowers default on their loans, the financial institutions that issued the loans stop
receiving payments. This is followed by a period in which financial institutions redefine the
riskiness of borrowers, making it difficult for debtors to find creditors.
BREAKING DOWN 'Credit Crisis'
In the case of a credit crisis, banks either do not charge enough interest on loans or pay too much
for the securitized loan, or the rating system does not rate the risk of the loans correctly. A crisis
occurs when several factors combine in the marketplace, affecting a large number of investors.
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Unsecured Loan
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Video Definition
An unsecured loan is a loan that is issued and supported only by the borrower's creditworthiness,
rather than by any type of collateral. An unsecured loan is one that is obtained without the use of
property as collateral for the loan, and it is also called a signature loan or a personal loan.
Borrowers generally must have high credit ratings to be approved for certain unsecured loans.
Loan
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A loan is the act of giving money, property or other material goods to another party in exchange
for future repayment of the principal amount along with interest or other finance charges. A loan
may be for a specific, one-time amount or can be available as an open-ended line of credit up to a
specified limit or ceiling amount.
The terms of a loan are agreed to by each party in the transaction before any money or property
changes hands. If the lender requires collateral, that is outlined in the loan documents. Most
loans also have provisions regarding the maximum amount of interest, as well as other covenants
such as the length of time before repayment is required. A common loan for American
consumers is a mortgage. The mortgage calculator below illustrates the various types of
mortgages and their different terms.
Loans can come from individuals, corporations, financial institutions, and governments. They
offer a way to grow the overall money supply in an economy as well as open up competition and
expand business operations. The interest and fees from loans are a primary source of revenue for
many financial institutions such as banks, as well as some retailers through the use of credit
facilities.