What characterizes a 'non-performing loan'?

A non-performing loan is characterized by the borrower's failure to make the scheduled payments, typically for a specified period, which might be 90 days or more, depending on the lending institution's policies. When a loan is classified as non-performing, it indicates that the lender is not receiving the expected cash flows from the borrower, which can significantly affect the lender's financial health. Non-performing loans can lead to increased risk and require banks to set aside capital to cover potential losses, affecting their overall profitability and balance sheet.

The other options do not accurately define a non-performing loan. For example, a loan that is fully secured with collateral does not indicate a borrower's inability to make payments. Similarly, a loan with a low-interest rate or one that is in the process of being repaid would not be classified as non-performing, as both reflect active repayment scenarios.