UK Accounting Glossary
Failure to meet obligations as they fall due for payment.
A default can be generally defined as a failure of a debtor to make timely payments of principal and interest. Thus, when one is in default, a person or a company is said to default on a loan or other official financial obligation. Default also occurs when a debtor fails to sufficiently meet any timely provisions of a bond, mortgage, lease, or futures contract. Before extending credit, banks, lenders, as well as debt and equity issuing entities take into consideration default risk, i.e. a possibility that a company or an individual will not honour a debt commitment. Some borrowers with higher-than-average default risk must pay a compensatory default premium. Default premium would constitute a higher bond yield offered by a company with scanty financial tenets. Default premium is also frequently paid by individuals with poor credit, typically in a form of above-market interest rates.
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This glossary post was last updated: 23rd December 2018.