Default risk refers to the possibility that a borrower, such as an individual or a company, will fail to meet their debt obligations, meaning they won't make scheduled payments on loans or bonds. This risk is particularly important for lenders and investors, as it can lead to financial losses if the borrower cannot repay the borrowed amount. To assess default risk, financial institutions often analyze the borrower's creditworthiness, which includes their credit history, income, and overall financial health. Tools like credit ratings from agencies such as Moody's or Standard & Poor's help investors gauge the likelihood of default and make informed decisions about lending or investing.