When is a loan in default (for investors)
What is a Loan Default?
In simple terms, a loan default happens when a borrower doesn’t meet the contractual payment terms of their loan agreement. But it’s important to know that a default doesn’t automatically mean a loss — especially when the loan is secured by property, as it is at FOLK2FOLK.
Our 14-day default rule (vs. the FCA’s 180-day rule)
The Financial Conduct Authority (FCA) defines default as when a borrower is past the contractural payment due date by 180 days. However, at FOLK2FOLK, a loan is flagged as in default if a monthly payment is 14 days overdue, because early action improves recovery prospects. This means you may see more defaults reported compared to some platforms — but it doesn’t mean we’ve had more problems. It just means we’re quicker to act.
What types of things cause a loan to default?
A loan may be classified as in default for several reasons, including:
- The borrower misses one or more interest payments
- The borrower does not repay the capital at the end of the loan term
- The borrower breaches another important condition in the loan agreement
When any of these occur, we move the loan into default and begin taking steps to recover the funds owed.
