What does “defaulting” on a loan mean?

Defaulting on a loan refers to the failure to meet the legal obligations outlined in the loan agreement, which typically includes not making the required payments on time. When a borrower defaults, it often leads to consequences such as penalties, increased interest rates, or legal actions, including repossession of collateral if applicable.

Making extra payments towards the principal, negotiating lower interest rates with the lender, or paying off a loan ahead of schedule are all actions that demonstrate a borrower is actively managing their debt and fulfilling their obligations under the loan terms. These actions do not align with the term “default” since they indicate adherence to or proactive management of the loan agreement rather than a failure to comply.