We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is Arrearage?

Malcolm Tatum
By
Updated: May 17, 2024
Views: 7,642
Share

Arrearage is a term used to identify a situation in which a payment on some type of financial instrument is past due. The term can be applied to payments due on bank loans, mortgages, or even on certain types of stocks. Unless there are extenuating circumstances, it is usually wise to not allow obligations to become past due.

As applied to loans, mortgages, and credit card payments, arrearage refers to the amount that is past due on the account. For example, if a borrower is three months behind in making the mortgage payment, the arrearage will amount to the total of three months worth of payments. Some lenders will also include any penalties or additional interest charges applied to the past due amount as part of the arrearage, although others treat those amounts as separate line items on the account.

When associated with stocks, arrearage usually has to do with a delay in paying dividends on the shares of stock owned by an investor. In some cases, this may be planned, such as with cumulative preferred stock options. With this type of stock, the idea is to delay disbursing the dividends until some specific time in the future, even though the dividends are calculated at regular intervals. The balance of those calculated dividends are recorded on the shareholder’s account, and show as an open item until the disbursement is eventually made.

A similar process can also take place with bond issues. Many bonds are configured to delay the payment of interest until the bonds reach maturity. Over the life of the bonds, the unpaid interest is allowed to accumulate and is held by the bond issuer for the holder. Once the bond does mature, the bondholder forwards the interest, along with the original investment in the bond issue, to the bondholder and the transaction is considered complete.

While arrearage with some types of investment opportunities is simply a means of keeping track of payments that are due the investor at some specific point in the future, arrearage that is connected with consumer debt is another matter. Many lenders will only allow accounts to fall past due for a certain amount of time before action is taken to collect the payments that are in arrears, or to declare the debtor to be in default. Should an individual exhibit a continual pattern of falling behind on loan payments and similar debts, his or her credit rating is adversely affected. This situation in turn makes it very difficult to secure credit in any form in the future, until the consumer has demonstrated over time that he or she is capable of avoiding arrearage by paying all debt obligations by the dates specified by each creditor.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including WiseGeek, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.

Editors' Picks

Discussion Comments
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.wisegeek.net/what-is-arrearage.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.