What is default?

The word "default" has firmly established itself in our lexicon after the events of 1998, when the Government of Russia refused a number of obligations for payments to the population. The subsequent world economic crises further intensified the negative sounding of this term among ordinary citizens. But do we all clearly understand what is a default?   

The default ( translated from English as "default") is the total or partial inability to fulfill obligations under the loan agreement for any reason. In other words, this is a failure to pay the debt, the interest due or the failure to fulfill other obligations under the terms of the loan agreement. Individuals, companies, as well as the state can declare a default.

There are three types of defaults: ordinary, technical and sovereign.

The usual default( debt service default) - the absolute impossibility to fulfill obligations under the loan agreement, the actual failure to pay the debt at the due time. Most often this means full bankruptcy of the borrower. Default will always remain a black spot in the credit history of a private individual or company, reducing to the minimum the possibility of further obtaining loans.

Most often, default leads to the fact that for the calculation of debts you have to sacrifice property: in the case of bankruptcy of the company, it is sold in whole or in parts;in case of bankruptcy of a private person, debts are repaid at the expense of an apartment, car, etc.

What is technical default? This is a situation in which there is a violation of certain conditions of the loan agreement, but the borrower can physically fulfill it, i.e.about bankruptcy it does not go. Such violations include refusal to provide the necessary documents, inconsistency of the borrower's required amount of capital to real data, etc. The outcome of such a situation depends on the reasons for the default, as well as the credit laws of a specific country.

Sovereign default is also called a country's default. What is the country's default? It is internal( before citizens) or external( before other countries) debt of the state, from the obligation to service which it refuses. Sovereign default is the most dangerous, because it differs by its scale( impossibility of payment to a large number of people) and lack of state legal support( since the state itself can not help it).

Now you know what default is, how it happens and what its consequences can be fraught with.