Default Rate

AAA

DEFINITION of 'Default Rate'

This rate can be used in reference to two main things:

1. The rate of borrowers who fail to remain current on their loans. It is a critical piece of information used by lenders to determine their risk exposure and economists to evaluate the health of the overall economy.

2. The interest rate charged to a borrower when payments on a revolving line of credit are overdue. This higher rate is applied to outstanding balances in arrears in addition to the regular interest charges for the debt.

INVESTOPEDIA EXPLAINS 'Default Rate'

Prior to passage of the Credit Card Accountability, Responsibility and Disclosure (CARD) Act of 2009, the language in some credit card agreements allowed credit card companies to hike the interest charged on the card balance to the default rate even if consumers were current on their account but had an outstanding balance on another credit card (a practice known as "universal default").

The law, which took effect in the fall of 2009 imposed sweeping new restrictions on the credit industry, including the elimination of the universal default rate.

RELATED TERMS
  1. Notice Of Default

    A public notice filed with a court stating that a mortgage borrower ...
  2. Unsecured Debt

    A loan not backed by an underlying asset. Unsecured debt includes ...
  3. Arrearage

    An amount on a loan, cumulative preferred stock or any credit ...
  4. Credit Card

    A card issued by a financial company giving the holder an option ...
  5. Interest

    1. The charge for the privilege of borrowing money, typically ...
  6. Line Of Credit - LOC

    An arrangement between a financial institution, usually a bank, ...
Related Articles
  1. Home & Auto

    Financing Basics For First-Time Homebuyers

    If you're looking to get your first mortgage, there are many financing options available.
  2. Insurance

    Credit Default Swaps: What Happens In A Credit Event?

    The credit crisis of 2008 prompted important changes to the settlement of credit default swaps.
  3. Insurance

    Is Loan Protection Insurance Right For You?

    This coverage can keep you from defaulting on your loans when you're in financial trouble.
  4. Bonds & Fixed Income

    Credit Default Swaps: An Introduction

    This derivative can help manage portfolio risk, but it isn't a simple vehicle.
  5. Budgeting

    Debt Consolidation Made Easy

    These five steps can help get you out of debt faster and easier than you'd ever imagined.
  6. Bonds & Fixed Income

    5 Signs Of A Credit Crisis

    These indicators can illuminate the depth and severity of problems in the credit markets.
  7. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  8. It can be great to live in the moment, but the actions and decisions you make now can greatly impact your sense of financial security down the road.
    Personal Finance

    How Do Americans Keep Minimizing Their Net Worth?

    It can be great to live in the moment, but the actions and decisions you make now can greatly impact your sense of financial security down the road.
  9. It's tough to get a credit card when you move to the U.S. with no Social Security number and no American credit history. Here's how to get started.
    Credit & Loans

    Top Credit Card Options For International Students

    It's tough to get a credit card when you move to the U.S. with no Social Security number and no American credit history. Here's how to get started.
  10. Personal Finance

    What Canadian credit cards offer the best travel rewards?

    Discover Canada's best credit cards for travel rewards and the benefits that they offer. Learn how these cards can help you travel safely and happily..

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center