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Compromise

Definition of 'Compromise'

A Compromise is an agreement by a lender to accept less than the full amount due under a credit agreement.

A lender might be persuaded to enter into a compromise if the amount not recovered is less than the cost of pursuing a debt through the courts, together with the administrative costs, or if there is simply no prospect of recovering further monies through collections or recovery actions.

Sometimes, compromises are agreed when a third party (e.g. a parent) offers to pay off most of the debt voluntarily.

A compromise is therefore a matter of commercial judgement for a lender – a practical and pragmatic way of removing bad debt from a lender’s balance sheet.

While a compromise may seem lire a no-brainer from the borrower’s point of view, a compromise payment status on a credit Report will act as a beacon to lenders that, if the past is a guide to the future, there is significant risk of loss if further credit is extended to a borrower who has entered into a compromise with a previous lender.

The compromise record is therefore a significant adverse entry on a credit report.

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