A more thorough explanation:

Definition: A nonperforming loan is an outstanding loan that is not being repaid.

Example: If a borrower fails to make payments on their mortgage, the loan becomes nonperforming. The lender may then take legal action to recover the debt or repossess the property.

This example illustrates how a nonperforming loan can lead to financial losses for the lender and legal consequences for the borrower. It is important for borrowers to make timely payments on their loans to avoid default and for lenders to monitor their loan portfolios to minimize nonperforming loans.