Definition

The percentage of borrowers who fail to repay their loans, indicating the risk level associated with a loan portfolio.

What to consider

  • Keep track of default rates to understand overall credit risk.
  • Consider how a higher default rate might impact borrowing costs.
  • Review trends to make smarter credit decisions.

Real world scenarios

  • While reviewing loan performance, the bank noticed an increase in the default rate among borrowers with poor credit histories.

Related terms

Debt & Loans