Event Of Default

What is an 'Event Of Default'

An event of default is an action or circumstance that causes a lender to demand full repayment of an outstanding balance sooner than it was originally due. In many agreements, the lender will include a contract provision covering events of default to protect itself in case it appears that the borrower will not be able to or does not intend to continue repaying the loan in the future. An event of default enables the lender to seize any collateral that has been pledged and sell it to recoup the loan.

BREAKING DOWN 'Event Of Default'

Occurrences that may trigger an event of default include non-repayment of a loan at maturity, breach of contract and declaration of bankruptcy. Event of default clauses can be included not only in loan and lease agreements, but also in business agreements such as joint ventures and partnerships. Such a clause can allow the non-defaulting parties to exit a broken agreement.

RELATED TERMS
  1. Security Agreement

    A document that provides a lender a security interest in a specified ...
  2. Acceleration Clause

    A contract provision that allows a lender to require a borrower ...
  3. Default Probability

    The degree of likelihood that the borrower of a loan or debt ...
  4. Collateralization

    The act where a borrower pledges an asset as recourse to the ...
  5. Default

    1. The failure to promptly pay interest or principal when due. ...
  6. Credit Default Contract

    Security with a risk level and pricing based on the risk of credit ...
Related Articles
  1. Investing

    What Happens in a Default?

    Borrowers are in default when they don’t honor a debt, whether their failure is intentional or not.
  2. Investing

    What Does a Lender Do?

    A lender provides funds to another with the expectation those funds will be repaid with interest.
  3. Personal Finance

    Understanding Default Risk

    Default risk is the chance that companies or individuals will be unable to pay their debts.
  4. Personal Finance

    Explaining Non-Recourse Debt

    Non-recourse debt limits a lender as to what it can and cannot pursue for collateral.
  5. Investing

    What are the Five C's of Credit?

    The five C’s of credit are what banks and other lenders evaluate about a potential borrower when making a lending decision. The five C’s are Character, Capacity, Capital, Collateral and Conditions. ...
  6. Personal Finance

    What Is Collateral?

    Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup ...
  7. Markets

    What is a Loan Loss Provision?

    Banks set aside loan loss provisions to cover losses from bad loans.
  8. Personal Finance

    Student Loans: Loan Repayment

    After graduation you'll begin the task of paying off your student loans. This is called entering repayment. The term repayment is used because your lenders made payments to you while you were ...
  9. Markets

    Tips To Improve Chances Of A Small Business Loan

    Enhance your small business loan eligibility by keeping these important tips in mind.
  10. Retirement

    Student Loan Debt: Is Consolidation The Answer?

    Consolidating your student loans offers convenience, but there are drawbacks.
RELATED FAQS
  1. What level of default rate is typical for the credit services industry?

    Learn how default rates affect businesses in the credit services industry, and what rates are considered normal for a company ... Read Answer >>
  2. What are the differences between delinquency and default?

    Find out more about loan delinquency, loan default, and the difference between a loan borrower defaulting and being delinquent ... Read Answer >>
  3. What special powers does the government have to collect student loans?

    Contact student loan companies before student loans default, as the government has the power to get its money. Prior to default, ... Read Answer >>
  4. What is the difference between secured and unsecured debts?

    Learn the differences between secured and unsecured debt; discover how banks buffer risks associated with each type of loan ... Read Answer >>
  5. What factors are taken into account to quantify credit risk?

    Learn how probability of default, or PD; loss given default, or LGD; and exposure at default, or EAD, are used to help quantify ... Read Answer >>
  6. Can Sallie Mae garnish my wages?

    Discover whether or not, and why, private lenders such as Sallie Mae have the ability to garnish a defaulted borrower's wages. Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center