Default Risk

Default risk refers to the possibility that a borrower, such as a company or government, will be unable to meet its debt obligations—specifically, failing to make interest payments or repay the principal amount borrowed. This risk is a concern for lenders and investors, as it can result in financial losses if the borrower declares bankruptcy or otherwise cannot pay. Factors influencing default risk include the borrower's financial health, economic conditions, and creditworthiness. Understanding default risk helps investors evaluate the potential risks associated with lending money or investing in bonds or other debt instruments.