Nonaccrual Loan

AAA

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.

INVESTOPEDIA EXPLAINS '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. 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. Nonperforming Loan - NPL

    A sum of borrowed money upon which the debtor has not made his ...
  4. Default

    1. The failure to promptly pay interest or principal when due. ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Default Risk

    The event in which companies or individuals will be unable to ...
RELATED FAQS
  1. How is depreciation related to the carrying value of a tangible asset?

    Depreciation is related to the carrying value of a tangible asset in that the latter is the original cost of the tangible ... Read Full Answer >>
  2. What is the difference between carrying value and market value?

    The difference between carrying value and market value is that the carrying value of an asset is the original cost less the ... Read Full Answer >>
  3. What metrics can be used to evaluate companies in the banking sector?

    When investment professionals evaluate banks, they are confronted with bank-specific issues such as to how to measure debt ... Read Full Answer >>
  4. What's the difference between the prime rate and the discount rate?

    Both the prime rate and discount rate are used in the financial system and set in the United States by the Federal Reserve ... Read Full Answer >>
  5. What are the full rights of creditors in cases of bankruptcy?

    Creditors have a right to company assets before company owners do during bankruptcy proceedings. Company assets are liquidated ... Read Full Answer >>
  6. What information should I look at on a publicly traded company for use in fundamental ...

    In finance, fundamental analysis focuses on estimating a company's value based on the underlying factors that affect its ... Read Full Answer >>
Related Articles
  1. Insurance

    Is Loan Protection Insurance Right For You?

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

    Credit Default Swaps: An Introduction

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

    Debt Consolidation Made Easy

    These five steps can help get you out of debt faster and easier than you'd ever imagined.
  4. Credit & Loans

    Student Loan Deferment: Live To Pay Another Day

    Extending your principal repayment date can increase your chances of fighting off default.
  5. Personal Finance

    Dawn Of The Zombie Debt

    Are old debts coming back to haunt you? We'll show you how to keep these zombies from eating you alive.
  6. Credit & Loans

    How To Increase Your Appeal To Prospective Lenders

    Making a business eligible for loans/credit cards at the best possible rates requires crafting an excellent credit profile through the smart use of credit.
  7. Credit & Loans

    What's a Revolving Line of Credit?

    A revolving line of credit is an arrangement made between a company or an individual and a bank to borrow money on a short-term basis.
  8. Savings

    Explaining Checking Accounts

    A checking account is an account at a financial institution, usually a bank, that allows for deposits and withdrawals.
  9. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  10. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center