Default on Secured & Unsecured Debt
Defaulting on any type of debt can have serious consequences, leading to a lowered credit rating and affecting both secured and unsecured debt.Formula
FIXED (dimension, value)How do I calculate the default?
The best way to calculate default is to use a FIXED level of detail expression. This expression takes in the specified dimensions and values and returns a number as the result. It is recommended to use the calculated field as a dimension when using tools such as Sourcetable. The formula for calculating default is FIXED (dimension, value) .
What is a default in finance?
In finance, a default occurs when a debtor fails to meet the legal obligations (or conditions) of a loan, typically when they fail to make the required payments. It can also refer to the failure to perform on a futures contract as required by an exchange.
What are the consequences of a default?
Defaulting on a loan can have serious consequences. For the borrower, these can include damage to their credit score, legal action from the lender, and difficulty securing loans in the future. For the lender, a default can result in financial loss. In the case of secured loans, the lender may be able to seize the collateral associated with the loan.
What is a default risk?
Default risk, also known as credit risk, is the risk that a borrower will not repay a loan according to the terms of the loan agreement. Lenders typically assess default risk before issuing a loan and set interest rates and terms based on this assessment. Higher default risk usually leads to higher interest rates to compensate for the increased risk.
What do banks use for the required loss elements?
Banks should use estimates for each of the required loss elements.
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Key Points
How do I calculate default?
FIXED (dimension, value)
Default on Secured Debt
Defaulting on secured debt is when a borrower fails to make timely payments on a loan that is secured by an asset, such as a house. When a borrower defaults on such a loan, the lender can take possession of the asset used to secure the loan.
Default on Unsecured Debt
Defaulting on unsecured debt is when a borrower fails to make timely payments on a loan that does not have an asset securing it, such as with credit cards or student loans. This type of default is less severe than defaulting on secured debt as the lender does not have the ability to seize an asset from the borrower.
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