What is Delinquency in Banking: Here’s all you need to know about it

Understanding key terms is crucial. These terms include default and delinquent. They are important in banking for all borrowers. This is because they help you understand what happens when you miss your EMI due date. 

Paying your dues on time is a part of your loan contract. Thus, delinquency can have many negative consequences that damage your credit health. However, default is a major offence. It can seriously harm your future borrowing ability.

Read on to learn what is delinquency and default. Learn their differences and their effects on credit scores and more. 

What are Delinquent Loan Accounts?

In banking, a delinquent is a borrower who can’t pay their debts on the agreed date. This term also applies to borrowers who have not paid their EMI for 30 days or more after the due date. This grace period is common for most lenders. 

The grace period varies by lender. Some wait 15 days, while others give the borrower up to 60 days. After this, banks report the borrower’s credit behaviour to the credit bureau. This affects the credit score. 

One delinquency on your report has no long-term consequence. You can fix it by making the payment. Yet, you may see a large drop in your score when you repay 60 to 90 days after the due date. 

What are Default Loan Accounts? 

After many delinquencies, lenders take the necessary steps to recover the loan amount. They may use debt collectors or take legal action to collect the outstanding amount. Simply put, if you miss 3-6 EMIs, lenders will mark your account as default. However, they don’t do this right away. 

Before marking a default account, they use the following strategies: 

• Communicate with the borrower, requesting them to make the payment 
• Restructure the loan to make it more manageable 
• Provide borrower with financial counselling to help them plan their loan repayment 
• Some lenders even help borrowers create a budget to prioritise loan payment

After trying all these options, lenders must mark the account as in default. 

Also Read: Loan Defaults: Borrower’s Right And Ways To Avoid Difficulties

Difference Between Default and Delinquency

As soon as the borrower misses the EMI, it becomes a case of delinquency, but lenders wait some time for defaults. Thus, the key difference between these terms is the time duration. 

Both hurt your credit score. But, defaults stay on your credit records for up to seven years. On the other hand, you can resolve the delinquency instantly by paying the dues. 

How to Remove Them from Your Credit Report 

To remove delinquency, you can take the following steps 

• Clear your dues
• Negotiate with the lender
• Get your updated credit report and rectify any outdated information 
• Write to credit bureaus 

Even after you have paid your pending dues, the history of defaults stays on your record for seven years. So, to improve your credit score, you can take the following steps:

• Review your credit report periodically and fix any discrepancies 
• Pay your future EMIs and credit card bills on time and in full 
• Maintain a good credit utilisation ratio by keeping it under 30% 
• Apply for loan only when you can afford to repay them 
• Communicate with your lenders to find a solution if you are unable to pay your EMI

Knowing these tips helps you to manage your loans before the damage becomes severe. People fall into such situations due to a lack of funds. But, you can choose debt consolidation loans instead. They make repayment easier. One way to do this is to apply for a Fibe Instant Cash Loan. 

At Fibe, you can get up to ₹5 lakhs without any hassle, thanks to the swift disbursement process. There are no end-use restrictions. So, you can use your loan for any reason, including settling debts. 

In addition, you can close your loan before the chosen tenure without any additional fees. So, download our Personal Loan App from the Google Play Store or App Store, or simply visit our website to apply. 

FAQs on Default vs Delinquency

What is the difference between delinquent and default?

If you miss one or two of your loan EMIs, lenders mark your account as delinquent. But, if you don’t pay many loan EMIs, you’re breaking the loan agreement. Thus, a delinquent borrower is prone to default.