Incipient Default

Your car speeds toward the cliff’s edge, as you tightly hold hands with the person in the passenger seat, ready to fly off into the great beyond. But you haven’t driven off into the canyon yet. Incipient crash.

Money is running out. Your loan payment is due at the end of the month, but you have no prospects of getting enough cash. Incipient default.

The term “incipient default” refers to a situation when a borrower is clearly on their way to defaulting on a loan, but hasn’t entered full default. The state is often defined in a loan agreement. For instance, two months late on payments might define incipient default, while three months late might define actual default.