What does a default in financial terms refer to?

A default in financial terms specifically refers to the failure or inability to meet the obligations of a debt. This can occur when a borrower does not make the required payments on a loan, bond, or other financial obligation, leading to consequences such as penalties, increased interest rates, or the initiation of collection efforts.

Understanding default is essential for both borrowers and lenders, as it signifies a significant financial risk. For lenders, a default indicates a loss of income and can lead to financial instability; for borrowers, it can damage credit ratings and lead to legal repercussions. Hence, recognizing default as a failure to meet financial obligations encompasses the concept's severity in the finance and credit domains.