Loan Default Risk

Loan default risk refers to the possibility that a borrower will fail to repay a loan as agreed. This risk affects lenders, as they may lose money if a borrower cannot make payments, often leading to financial losses. Factors contributing to default risk include the borrower’s financial stability, credit history, employment status, and economic conditions. To manage this risk, lenders assess borrowers’ ability to repay before granting loans and may charge higher interest rates for those deemed at greater risk. Understanding loan default risk helps lenders make informed decisions in lending practices.