What it is:
Paid-up means that all payment obligations under a contract are met.
How it works (Example):
Let's say John Doe takes out a car loan to purchase a 1985 Camaro. The loan requires 60 monthly payments of $141. John misses a few payments because he overspent on a leather jacket and some Knight Rider memorabilia. His lender calls to tell him that his loan is not paid up and late-payment fees will be assessed.
Why it Matters:
Being paid up on one's accounts is one of the pillars of having good credit. From a business perspective, failing to pay up can result in lawsuits for contract breach and can cost money in interest charges and late fees. Creditors can also report failures to maintain a paid-up status to credit reporting agencies, which the borrower's inability to pay reliably and lower their credit scores accordingly.