Default Rate Calculator
This tool calculates the default rate, which is the percentage of accounts that fail to meet their obligations out of a total number of accounts.
Enter the Number of Defaults (e.g., loans that failed) and the Total Number of Loans / Accounts in the group you are measuring.
Enter Your Data
Understanding the Default Rate & Its Formula
What is a Default Rate?
A Default Rate is a key performance indicator (KPI) used in finance and business to measure the percentage of borrowers in a lending portfolio who have failed to make their scheduled payments for a specified period. While commonly used for loans, the concept can be applied to any scenario involving failure to meet an obligation, such as subscription cancellations (churn rate) or product defects.
Default Rate Formula
The formula to calculate the default rate is simple and direct:
Default Rate = (Number of Defaults / Total Number of Loans) * 100
The result is expressed as a percentage. A lower default rate is generally desirable as it indicates lower financial risk and a healthier portfolio of accounts.
10 Real-World Default Rate Examples
Click on an example to see the step-by-step calculation:
Example 1: Small Business Loan Portfolio
Scenario: A community bank analyzed its small business loan portfolio for the past year.
1. Known Values: They issued 250 loans, and 8 of those businesses defaulted.
2. Formula: Rate = (Number of Defaults / Total Loans) * 100
3. Calculation: Rate = (8 / 250) * 100 = 0.032 * 100
4. Result: The default rate is 3.2%.
Example 2: Credit Card Accounts
Scenario: A large financial institution reviews its 1.5 million credit card accounts.
1. Known Values: 45,000 accounts went into default over the last fiscal year.
2. Formula: Rate = (Number of Defaults / Total Accounts) * 100
3. Calculation: Rate = (45,000 / 1,500,000) * 100 = 0.03 * 100
4. Result: The default rate for their credit card portfolio is 3.0%.
Example 3: SaaS Subscription Churn Rate
Scenario: A Software-as-a-Service (SaaS) company wants to calculate its monthly churn rate, which is a form of default rate.
1. Known Values: At the start of the month, they had 4,000 subscribers. During the month, 120 cancelled.
2. Formula: Rate = (Cancellations / Total Subscribers) * 100
3. Calculation: Rate = (120 / 4,000) * 100 = 0.03 * 100
4. Result: The monthly churn rate is 3.0%.
Example 4: High-Risk Auto Loans
Scenario: A subprime auto lender analyzes a recent batch of 80 high-risk loans.
1. Known Values: Due to the high-risk nature, 15 borrowers defaulted.
2. Formula: Rate = (Number of Defaults / Total Loans) * 100
3. Calculation: Rate = (15 / 80) * 100 = 0.1875 * 100
4. Result: The default rate is 18.75%.
Example 5: Perfect Performance (Zero Defaults)
Scenario: A peer-to-peer lending platform reviews a batch of 50 loans, all of which were paid on time.
1. Known Values: Number of defaults is 0; total loans is 50.
2. Formula: Rate = (Number of Defaults / Total Loans) * 100
3. Calculation: Rate = (0 / 50) * 100 = 0 * 100
4. Result: The default rate is 0.00%.
Example 6: Manufacturing Defect Rate
Scenario: A factory wants to calculate the defect rate for a production run of smartphones.
1. Known Values: A total of 20,000 phones were produced, and 150 failed final quality control.
2. Formula: Rate = (Defective Units / Total Units) * 100
3. Calculation: Rate = (150 / 20,000) * 100 = 0.0075 * 100
4. Result: The defect rate is 0.75%.
Example 7: Student Loan Cohort Analysis
Scenario: A university tracks the default rate for a cohort of 5,280 graduates who took out federal loans.
1. Known Values: Three years after graduation, 451 of them are in default.
2. Formula: Rate = (Number of Defaults / Total Students) * 100
3. Calculation: Rate = (451 / 5,280) * 100 ≈ 0.0854 * 100
4. Result: The default rate for this cohort is approximately 8.54%.
Example 8: Mortgage Portfolio
Scenario: A bank reviews its portfolio of 12,400 residential mortgages.
1. Known Values: They find that 93 mortgages are currently in foreclosure proceedings (default).
2. Formula: Rate = (Defaults / Total Mortgages) * 100
3. Calculation: Rate = (93 / 12,400) * 100 = 0.0075 * 100
4. Result: The mortgage default rate is 0.75%.
Example 9: E-commerce Order Failure Rate
Scenario: An online retailer analyzes payment processing failures.
1. Known Values: Out of 5,000 attempted transactions, 75 failed due to declined cards or fraud alerts.
2. Formula: Rate = (Failed Orders / Total Orders) * 100
3. Calculation: Rate = (75 / 5,000) * 100 = 0.015 * 100
4. Result: The payment failure rate is 1.5%.
Example 10: Invoice Payment Defaults
Scenario: A B2B company checks how many invoices become overdue by more than 90 days (their definition of default).
1. Known Values: In the last quarter, they sent 800 invoices. 24 of them remain unpaid after 90 days.
2. Formula: Rate = (Defaulted Invoices / Total Invoices) * 100
3. Calculation: Rate = (24 / 800) * 100 = 0.03 * 100
4. Result: The invoice default rate is 3.0%.
Frequently Asked Questions about Default Rate
1. What is the basic formula for the default rate?
The formula is: Default Rate = (Number of Defaults / Total Number of Loans) * 100. It's a simple percentage calculation.
2. What does a high default rate indicate?
A high default rate typically indicates higher risk. It could suggest that lending standards are too loose, the economic climate is poor, or the borrowers are not financially stable.
3. Can I use this calculator for things other than loans?
Yes, absolutely. It can be used to calculate any "failure" rate, such as customer churn (cancellations / total customers), product defect rate (defects / total products), or email bounce rate (bounces / total emails sent).
4. What is a "good" default rate?
This varies widely by industry. A mortgage default rate of 1% might be normal, while a high-risk "buy now, pay later" service might consider 5-7% acceptable. The goal is always to keep it as low as possible for your specific industry.
5. Does this tool store any of my data?
No. The calculator runs entirely in your browser. No data you enter is ever sent to a server or stored anywhere. It's completely private.
6. What is the difference between default rate and charge-off rate?
A "default" is when a borrower misses payments for a certain period (e.g., 90-180 days). A "charge-off" is the next step, where the lender gives up on collecting the debt and writes it off as a loss. The charge-off rate is usually lower than the default rate.
7. Why can't the "Total Number of Loans" be zero?
Mathematically, division by zero is undefined. You cannot calculate a rate without a total population to measure against. This calculator prevents that error.
8. Why does the JavaScript for this tool avoid the '&&' operator?
This tool is built to be robust in WordPress environments where aggressive filters can mistakenly break JavaScript by converting the `&&` operator into HTML entities (`&&`). By using nested `if` statements instead, the tool functions correctly even in these problematic environments.
9. What is the "Success Rate" shown in the results?
The Success Rate is simply the inverse of the Default Rate (100% - Default Rate). It shows the percentage of accounts that are performing successfully and meeting their obligations.
10. Can the Number of Defaults be higher than the Total Number of Loans?
No, that's logically impossible. The number of items that failed cannot be greater than the total number of items that existed. The calculator will show an error if you enter this.
