Failure to fulfill the terms of a loan agreement. For example, a borrower is in default if he or she does not make scheduled interest payments on a loan or fails to pay off the loan at the agreed time. Judging the likelihood of default is a crucial part of pricing a loan. Interest rates are set so that, on average , a portfolio of loans will be profitable to the creditor , even if some individual loans are loss-making as a result of borrowers defaulting.