Default Risk Evaluation

Default risk evaluation is the process of assessing the likelihood that a borrower, such as an individual or a company, will fail to repay a loan or meet contractual obligations. This evaluation considers various factors, including the borrower's credit history, financial stability, and economic conditions. Lenders and investors analyze these factors to gauge the risk of losing money if the borrower defaults. A higher default risk typically leads to higher interest rates or stricter lending terms, as lenders seek to protect themselves from potential losses. Understanding this risk helps both lenders and borrowers make informed financial decisions.