Nonaccrual Loan

What is a 'Nonaccrual Loan'

A nonaccrual loan is a nonperforming loan that is not generating the stated interest rate because of nonpayment from the borrower, typically due to financial difficulties. Nonaccrual loans are more likely to default, meaning that the investor will not recoup his or her principal.

Standard banking regulation requires that nonperforming loans be classified as nonaccrual if principal and interest have not been paid for at least 90 days, except in cases where the lender has adequate collateral to cover the loan.

BREAKING DOWN 'Nonaccrual Loan'

Banks and lending institutions maintain reserves to cover nonaccrual-loan losses. When borrowers resume making payments on the loan, the cash is applied first to principal and then to interest.

For bookkeeping purposes, banks deem nonaccrual loans as "cash basis loans." These loans can have interest credited only when the borrower makes payment; the bank can no longer credit the interest to its revenue until actual receipt. Interest is then recorded as earned income.

RELATED TERMS
  1. Cash Basis Loan

    A loan where interest is recorded as earned when payment is collected. ...
  2. Standing Loan

    A type of loan where payments are made of interest only. Repayment ...
  3. Renegotiated Loan

    The result of an agreement between a borrower and a lender to ...
  4. Classified Loan

    Any bank loan that is in danger of default. Classified loans ...
  5. Nonperforming Loan - NPL

    A sum of borrowed money upon which the debtor has not made his ...
  6. Problem Loan

    In the banking industry, a problem loan is one of two things; ...
Related Articles
  1. Investing

    What's a Nonperforming Loan?

    A nonperforming loan is any borrowed sum where the borrower has failed to pay scheduled payments for at least 90 days.
  2. Investing

    Understanding Term Loans

    A loan from a bank for a specific amount that has a specified repayment schedule and a floating interest rate.
  3. Personal Finance

    Personal Loans vs. Car Loans

    How to tell whether a personal loan or a car loan is better for you.
  4. Investing

    Different Needs, Different Loans

    Find out what options are available when it comes to borrowing money.
  5. Managing Wealth

    When Are Personal Loans a Good Idea?

    You never want to borrow money for frivolous reasons, but these five circumstances might warrant it.
  6. Markets

    Simple Interest Loans: Do They Exist?

    Yes, they do. Here is what they are – and how to use them to your advantage.
  7. Personal Finance

    Student Loans: Federal Loan Consolidation

    Federal loan consolidation is a helpful tool for converting an unmanageable payment into a manageable payment by combining multiple semester loans into one loan and extending your repayment schedule. ...
  8. Investing

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  9. Personal Finance

    Student Loans: Private Loans

    While federal loans should always be your first borrowing choice, they may not cover your full tuition – never mind lab fees, books, and room and board. That's where private loans come ...
  10. Personal Finance

    Personal Loans: To Lend Or Not To Lend?

    Attempting to help a loved one with a cash loan can put a strain on your relationship - and your bank account.
RELATED FAQS
  1. Are secured personal loans better than unsecured loans?

    Read about the differences between secured loans and unsecured loans and how they are used. Learn about forms of collateral ... 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. Which is better, a fixed or variable rate loan?

    A variable interest rate loan is a loan in which the interest rate charged on the outstanding balance varies as market interest ... Read Answer >>
  4. Why is there a wide margin in interest and a narrow margin in total amount paid on ...

    I am refinancing my home with payoff amount of $107,000 at current rate of 6.0% to a new loan value of $134,300 at 3.125%. ... Read Answer >>
  5. What are the typical repayment terms for a syndicated loan?

    Learn more about syndicated loans and how they are structured, specifically including the typical repayment terms for a syndicated ... Read Answer >>
  6. What is the difference between a fixed annual percentage rate (APR) and a variable ...

    Fixed ARP and variable APR loans operate differently but serve the same purpose: to collect interest from a borrower so the ... Read Answer >>
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center