Universal default is a clause that is present in many credit card agreements and agreements for loans that allows lenders to raise the interest rate for a customer if they have defaulted on any other loan. This clause is designed to encourage borrowers to make all payments on time, as any delinquency can lead to an increase in the interest rate on their credit card.

The universal default clause is often seen as a major disadvantage for consumers, as any missed payment or loan default could mean very large increases in the interest rate on their credit card or other loan. If a customer fails to make a payment or defaults on a loan, the interest rate on their credit could be raised to the penalty rate, which can be much higher than the original rate. This means that the customer could end up paying much more over the life of the loan.

In order to protect consumers, many states and countries have imposed regulations on the way in which companies handle universal default. These regulations typically require that companies give customers advance notice of any rate increases due to universal default and provide them with an opportunity to dispute the increase. In addition, some regulations may also limit the size of rate increases in certain situations.

Despite these measures, universal default is still a major disadvantage for consumers who may not be aware of all of the terms in their credit and loan contracts. It is thus important for consumers to make sure that they read and understand their credit and loan agreements to ensure that they are not at risk of facing a large rate increase. Consumers can also consider shopping around for credit and loan offers that do not include a universal default clause. By taking these steps, they can protect themselves from unnecessary increases in their loan interest rates.