What is the difference between delinquency and charge-off?

What is the difference between delinquency and charge-off?

• A. Delinquency means loan is current; charge-off paid in full.
• B. Delinquency means loan is in default and written off.
• C. Delinquency means payments are past due but the loan is still on the books; charge-off is when the loan is written off as a loss, typically after prolonged default.
• D. Delinquency and charge-off are the same.

Answer: (D)

Delinquency and charge-off describe different stages in how a loan is treated as a borrower misses payments. Delinquency means payments are past due, but the loan stays on the lender’s books as an asset and the borrower still owes the balance. The lender continues collection efforts, and interest may still accrue under policy. Charge-off is a formal accounting action taken after a prolonged period of default when the lender determines the debt is unlikely to be collected. The loan is written off as a loss and removed from the balance sheet, though collection efforts may continue and any recovered amounts are recorded as recoveries. So they are not the same: delinquency is late payments while the loan is still active, whereas charge-off is removing the debt from assets as a loss.

Delinquency and charge-off describe different stages in how a loan is treated as a borrower misses payments. Delinquency means payments are past due, but the loan stays on the lender’s books as an asset and the borrower still owes the balance. The lender continues collection efforts, and interest may still accrue under policy.

Charge-off is a formal accounting action taken after a prolonged period of default when the lender determines the debt is unlikely to be collected. The loan is written off as a loss and removed from the balance sheet, though collection efforts may continue and any recovered amounts are recorded as recoveries.

So they are not the same: delinquency is late payments while the loan is still active, whereas charge-off is removing the debt from assets as a loss.