Written byArrears are overdue repayments on a loan or credit account: the borrower has missed instalments, which the lender tracks by days past due and which can lead to a default.
Also known as: payment arrears, in arrears, overdue payments, delinquency
Key points
- A repayment is in arrears as soon as it is missed; lenders group overdue accounts into 30-day buckets up to 90-plus days past due.
- Arrears are not the same as default: default is a contractual breach that usually follows sustained arrears and lets the lender enforce.
- Accounts 90 or more days past due are usually treated as non-performing loans and attract provisioning.
- Lenders escalate as arrears age: reminders first, then calls and a financial assessment, then hardship offers and payment plans, then recovery action.
- For borrowers, contacting the lender early and asking for a hardship assessment opens up more options than waiting for fees and default notices.
How lenders classify arrears
Lenders sort overdue accounts by how long the payment has been outstanding. Early arrears, under 30 days, usually trigger automated reminders. Accounts 30 to 59 days overdue get a call and a look at the borrower's finances, 60 to 89 days brings closer monitoring and hardship offers, and 90-plus days is treated as late arrears where the loan is likely impaired.
They also distinguish performing accounts, where the arrears are temporary and expected to cure, from non-performing ones, and secured arrears from unsecured. On a secured loan, such as a car or property loan, the lender's remedies can include repossession or enforcing its security. Unsecured arrears on personal loans or credit cards rely on collections and legal recovery instead.
How arrears are measured
Lenders track arrears with a few plain-language metrics. The arrears rate is the total past-due balance divided by the total loan balance. The flow rate measures new past-due balances in a period against the performing balance at the start of it, and the cure rate is the share of accounts (or balances) in arrears that return to current.
Deeper analysis looks at roll rates, meaning the share of balances moving from one bucket to the next, and vintage analysis, which follows loans by the period they were written. These feed provisioning under the lender's accounting framework and the arrears reporting that APRA expects from regulated lenders.
What arrears mean for borrowers
Arrears usually attract late fees, and on a secured loan they can end in repossession or sale of the asset once the formal process has run. Missed payments show on your credit report through repayment history information once they are more than 14 days late. A separate default listing can follow when the debt is at least $150, at least 60 days overdue and the required notices have been given.
The practical steps are to contact the lender early, ask for a hardship assessment or a payment variation, document your income and expenses, and keep written records of every arrangement. Free financial counselling is available through community organisations, and most lenders have hardship pathways for consumer credit.
Example
A lender has a $100 million home loan book with $4 million of balances past due: $1 million at 30 to 59 days, $2 million at 60 to 89 days and $1 million at 90-plus days. Its arrears rate is 4%. During the month $800,000 of the past-due balance cures as payments resume, a cure rate by balance of 20%, while $400,000 of new balances fall into arrears, a monthly flow rate of roughly 0.42% of the $96 million that was performing at the start of the month.
Not to be confused with
- Default
- a default is the contractual breach that can follow sustained arrears and lets the lender accelerate the debt or enforce; arrears are simply the overdue payments
- Non-performing loan (NPL)
- a non-performing loan is the lender's accounting classification for a loan that is seriously in arrears or unlikely to be repaid, commonly at 90 days past due
Frequently asked questions
How many days late before a payment is in arrears?
A payment is in arrears as soon as it is missed. Lenders then classify the account by how many days it is past due, typically in buckets of 1 to 29, 30 to 59, 60 to 89 and 90-plus days, and escalate their response as the arrears age.
Do arrears show up on my credit file?
Yes. Licensed credit providers report repayment history information each month, so a payment more than 14 days late is recorded as missed. A default listing is a separate step again, and it needs the debt to be $150 or more, at least 60 days overdue, with the required notices sent first.
Can I ask for hardship if I am already in arrears?
Yes. Most lenders have hardship policies for exactly this situation. Contact the lender early, explain what has changed, provide documented income and expenses and ask for a formal hardship assessment. Options can include a payment pause, reduced repayments, an extended term or a repayment plan to clear the arrears.
Is being in arrears the same as defaulting?
No. Arrears means you have missed payments. Default is a contractual breach, usually declared after sustained arrears or a breach of loan covenants, that entitles the lender to demand the full balance or enforce its security. Arrears that are caught up quickly do not have to become a default.
When does an account get sent to collections or legal recovery?
Usually only after internal reminders, calls and hardship options have been exhausted and the lender's policy triggers are met, often at 90-plus days past due or after a formal default notice. Secured lenders may then move towards repossession; unsecured lenders refer the account to a collections agency or legal action.
Related terms
Broader term: Default
Default
A default is a borrower's failure to meet the terms of a credit contract, usually by missing repayments, which lets the lender demand the balance and enforce its security.
Read definitionHardship
Financial hardship is when a change in your circumstances, such as job loss or illness, means you cannot meet your loan, credit or bill repayments on time.
Read definitionNon-performing loan (NPL)
A non-performing loan (NPL) is a loan where the borrower is not meeting payments and the lender judges full repayment doubtful, commonly once payments are 90 days past due.
Read definitionCollections
Collections is the recovery process a lender, creditor or business runs when payments fall overdue: reminders, calls, payment plans and hardship offers, then referral to agencies or legal action.
Read definitionRepossession
Repossession is the enforced recovery of goods that secure a loan, such as a car, ute or machinery, after the borrower has defaulted on the contract.
Read definitionCredit rating
A credit rating is an independent assessment of how likely a government, company or debt issue is to meet its obligations on time, graded from AAA down to D.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.