Cash Basis Loan

All loans require some interest payments along with the amount of principal you owe. (Unless you borrowed from your brother-in-law and have no intention of paying it back). A cash basis is one that records the interest earned only when the loan payments are made by the borrower.

These types of loans are for those gone bad (not paid for 90 days or over), as regular loans assume consistent payment of both principal and interest. Cash basis loans are considered to be "bad debt" by the bank, since there is little or no hope the loan will be repaid.

A bank could always hire a collection agency to call borrowers until they pay up (or change their phone number). Or if the loan was secured by collateral such as a house or a car, the bank can repossess it to pay the loan. Remember all of this next Thanksgiving, when the ol' brother-in-law again gives you "the look" and sheepishly asks you to help with the (other) turkey.