A credit default swap is a financial derivative that allows an investor to swap or offset their credit risk with that of another investor. To swap the risk of default, the lender buys a CDS from another investor who agrees to reimburse them if the borrower defaults.
Most CDS contracts are maintained via an ongoing premium payment similar to the regular premiums due on an insurance policy.
A lender who is worried about a borrower defaulting on a loan often uses a CDS to offset or swap that risk.
A credit default swap is a derivative contract that transfers the credit exposure of fixed-income products. It may involve bonds or forms of securitized debt—derivatives of loans sold to investors.

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