What is the definition of default in financial terms?

In financial terms, default refers to a situation where a borrower fails to meet the legal obligations stipulated in a loan agreement, such as not making the scheduled payments. This inability to fulfill the terms of the loan can lead to various consequences, including penalties, fees, or even foreclosure in the case of secured loans like mortgages. Default signifies a breach of contract and severely affects the borrower's credit score and future borrowing capacity.

The other choices do not pertain to the definition of default. For instance, paying back a loan in full and on time represents the opposite of default and is indicative of responsible borrowing behavior. A legal requirement for loan agreements is a broad concept and does not specifically define default. Adjusting loan interest rates relates to broader financial strategies and lending practices but does not denote a situation where a borrower fails to meet their loan obligations. Thus, the definition focusing on a borrower’s failure to comply with loan terms is the most accurate representation of default.