Default rate

A measure of the frequency at which borrowers fail to repay their loans, like a storm brewing on the financial horizon, calculated as the ratio of loans in default to the total number of loans issued during a specific period.

A measure of the frequency at which borrowers fail to repay their loans, like a storm brewing on the financial horizon, calculated as the ratio of loans in default to the total number of loans issued during a specific period.

Example

If a lending institution issues 1,000 loans during a year and 30 of those loans go into default, the default rate would be calculated as 30 / 1,000 = 0.03 or 3%. This percentage helps the lender assess the overall credit risk of its loan portfolio and the effectiveness of its underwriting and risk management processes. A high default rate may indicate a need for stricter lending criteria or improved collection strategies.