What are the differences between delinquency and default?

Delinquency and default are loan terms that describe failure to make a required payment. A loan in delinquency occurs the day after the loan borrower misses his due date payment. A loan goes into default when the loan borrower fails to repay the loan according to the terms laid out in the promissory note agreement.

Delinquency

Loan delinquency is commonly used to describe a situation in which a loan borrower is late on a payment, such as student loans, mortgages, credit card account or automobile loans. There are consequences for loan delinquency, depending on the type of loan, the duration and the cause of the delinquency.

For example, assume a recent college graduate fails to make a payment on his student loans by two days. His loan remains in delinquent status until he either pays, defers or forebears his loan.

Default

On the other hand, a loan goes into default when a borrower fails to repay his loan as scheduled in the terms of the agreed promissory note he signed when he received the loan. Defaulting on a loan could adversely affect the loan borrower's credit rating, making it difficult for him to borrow money in the future. A loan borrower who defaults on his loans may have trouble obtaining a mortgage, purchasing homeowners insurance and getting approval to rent an apartment.

There is a time lapse that lenders and the federal government allow before a loan is officially placed in default status. For example, most federal student loans stay in delinquency and are not moved into default status until after the loan borrower has not made any payments on the loan for 270 days.