Default risk

Default risk,

Definition of Default risk:

  1. Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make the required payments on their debt obligation. Lenders and investors are exposed to default risk in virtually all forms of credit extensions. A higher level of default risk leads to a higher required return, and in turn, a higher interest rate. .

  2. Whenever a lender extends credit to a borrower, there is a chance that the loan amount will not be paid back. The measurement that looks at this probability is the default risk. Default risk does not only apply to individuals who borrow money, but also to companies that issue bonds and due to financial constraints, are not able to make interest payments on those bonds. Whenever a lender extends credit, calculating the default risk of a borrower is crucial as part of its risk management strategy. Whenever an investor is evaluating an investment, determining the financial health of a company is crucial in gauging investment risk.

  3. Exposure to loss due to non-payment by a borrower of a financial obligation when it becomes payable. Default risk is related to the credit worthiness of the borrower and is taken into account when setting interest rate on the requested loan.

How to use Default risk in a sentence?

  1. Rating agencies break down credit ratings for corporations and debt into either investment grade or non-investment grade.
  2. Default risk can be gauged by using FICO scores for consumer credit and credit ratings for corporate and government debt issues.
  3. Default risk is the risk that a lender takes on in the chance that a borrower won’t be able to make required debt payments.
  4. A free cash flow figure that is near zero or negative could indicate a higher default risk.

Meaning of Default risk & Default risk Definition

Default Risk,

What is The Definition of Default Risk?

  1. Default risk is the risk that a lender assumes if the debtor fails to pay the required amount on his loan. Lenders and investors face pre-determined risk in almost all forms of credit. A higher risk of default leads to a more desirable return and therefore higher interest rates.

    • The default risk is the risk that the lender assumes if the lender fails to make the necessary payments.
    • A free cash flow close to zero or negative may indicate a higher risk of default.
    • The default risk can be measured for corporate and government bonds using the FICO score for consumer credit and credit ratings.
    • Rating agencies classify the credit standards of companies and lending instruments into investment grade or non-investment grade.

  2. It is possible that the issuer of the bond will not be able to pay on maturity.

Literal Meanings of Default Risk


Meanings of Default:
  1. Non-compliance with obligations, including debt repayment or litigation.

  2. Pre-selected options that are assumed by a computer program or other mechanism if the user or programmer does not specify an alternative.

  3. Violation of obligations, such as debt repayment or legal action.

  4. Returns automatically (via computer program or other mechanism) (pre-selected option)

Sentences of Default
  1. You need to restructure your loan to avoid default

  2. The default is fifty lines

  3. Some defaulters on student loans

  4. As the new mail begins, the system adopts its default style

Synonyms of Default

not pay, failure to pay, back out, non-remittance, non-payment, backslide, fail to pay, renege, backtrack, fail to honour, revert


Meanings of Risk:
  1. To expose someone who has been harmed, harmed or damaged.

Synonyms of Risk

likelihood, put in jeopardy, put on the line, probability, put in danger, peril, gamble with, put at risk, hazard, menace, chance, threat, danger, wager, venture, endanger, imperil, prospect, fear, expose to danger