If a loan is overdue, MoneySwitch will suspend the loan, and request repayment. If MoneySwitch decide that the loan is unlikely to repay, MoneySwitch can declare the loan in default.
If the Credit Protection Pool is large enough to cover any payments due from the loan, then there will be no impact on lenders. The Credit Protection Pool will transfer the required amount of funds into the Master Pool.
If the Credit Protection Pool is not large enough, then any balance in the Credit Protection Pool is transferred to the Master Pool. The difference between the amount due, and the balance of the Credit Protection Pool gives rise to an impairment.
An impairment reduces the Interest Factors for the Feeder Pool(s) and the Master Pool. This reduces the balance (principal plus earned interest) for lenders.
If a lenders balance (principal plus earned interest) is less than the value of their original deposit they will have a deficit. A lender in deficit must withdraw an amount greater than this deficit (which clears the deficit) in order to clear this balance.