DEFINITION of 'Cash Basis Loan'

A loan where interest is recorded as earned when payment is collected. Ordinarily, interest income is accrued on loans, since regular payment of both principal and interest is assumed. However, in the case of nonperforming loans (loans gone bad), continuing payments are doubtful. Cash basis loans are nonperforming loans, and interest income can only be recorded when funds are actually received.

BREAKING DOWN 'Cash Basis Loan'

Typically, loans are considered to have gone bad when they are in default for 90 days. Different definitions may apply, however, to consumer loans, residential mortgage loans and other secured assets.

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