Nonaccrual Loan


DEFINITION of 'Nonaccrual Loan'

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.

  1. Reperforming Loan - RPL

    A loan on which the borrower was behind on payments (delinquent) ...
  2. Cash Basis Loan

    A loan where interest is recorded as earned when payment is collected. ...
  3. Default

    1. The failure to promptly pay interest or principal when due. ...
  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
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