Default

In finance, the term default refers to a failure to repay a debt in keeping with corresponding loan or credit agreements. Individuals, companies and even governments may default on debt repayments if they become insolvent.

Loan defaults have serious implications for borrowers. In the case of companies and governments, loan defaults result in ratings by rating agencies being lowered to non-investment grade. Bonds issued by companies or government which could potentially default on repayment of bond principal are known as junk bonds.

In Switzerland, when a private borrower defaults on a loan the lender has the right to open a debt collection case at the debt collection office of the municipality in which the debtor resides. The default is recorded in the borrower's municipal debt collection register and in their credit history at relevant credit bureaus. This can have serious implications on their creditworthiness and therefore on their future ability to obtain loans or lines of credit.

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