What is a non-performing loan (NPL)?

A non-performing loan is a debt instrument (i.e., a loan) in which the borrower has stopped making payments. Notes are negotiable instruments so they may be bought and sold. There is a secondary market for performing loans, non-performing loans, and what is called “under-performing” loans – loans where a borrower has missed payments or been late on payments, but is not yet delinquent enough to be deemed non-performing. Also currently developing is a market for rehabilitated or re-performing loans, in which the borrower agrees to a loan modification with the lender and demonstrates an ability to continue making those payments.