Definition
In business lending, default has two meanings. A loan default is a breach of the loan contract, such as a missed repayment or broken covenant, which can let the lender add default interest, demand repayment or enforce security. A credit default is information on a credit file recording an overdue debt. Both affect future borrowing and should be addressed promptly.
The same word describes two related but different things, and both matter when you borrow.
Loan default
A loan contract lists events of default. A late or missed instalment is the familiar trigger, but contracts can also include breaching a covenant, a change of control, insolvency events or a default on another loan. A default can trigger default interest, fees and the lender’s right to demand full repayment or enforce security. Our guide to reading a loan contract explains the clauses.
Credit default
A credit default is information on a credit file recording that a debt was overdue after required notices. It can affect future applications. Lenders weigh its age, size and whether it has been paid. See our guide to defaults and business finance.
Act early
If a default is looming, contact the lender or creditor before it happens. For finance options with a past default, make one enquiry.
Common questions
What counts as a default in a loan contract?
Missed repayments, plus other events listed in the contract, such as breaching a covenant, insolvency events or providing misleading information.
How long does a credit default stay on file?
Under the rules for personal credit reports, a listed default generally stays visible for five years. The OAIC explains the details.
Sources and further reading