What action is considered a default on a loan?

A default on a loan occurs when the borrower fails to meet the legal obligations or conditions outlined in the loan agreement. This typically manifests as missing scheduled payments, which indicates that the borrower is unable to fulfill their repayment responsibilities. Missing a scheduled payment can lead to penalties, increased interest rates, and damage to the borrower’s credit rating, as it signals to the lender that the borrower may be experiencing financial difficulties.

Paying off the loan early, refinancing the loan, or making partial payments do not constitute a default. Early payoff means the borrower has settled the loan before the due date, refinancing involves obtaining a new loan to pay off the old one, often on more favorable terms, and making partial payments can sometimes be arranged with lenders and may not automatically classify as default. Therefore, the action that clearly represents a failure to uphold the loan agreement is missing a scheduled payment.