Default is portfolio risk: customers who requested credit or services and do not pay. In lending, the default rate is the metric that defines whether the business model is viable. A high-default portfolio consumes capital at an unsustainable rate.
Outstanding loans/credit past due and uncollected at month close, divided by total active portfolio. This number lives in your risk management or collections system, not in the payment processor.
With an 8% default rate and 60% margins, every $100 lent generates $52 in gross margin but $8 in default losses = $44 net. If funding and operating costs exceed that $44, every transaction destroys value.
| Status | Range |
|---|---|
| Healthy | Consumer lending: < 3% |
| Alert | 3–6% |
| Critical | > 6% (review risk model) |
The default rate of the first cohorts is the earliest signal of scoring model problems. If the rate in the first 60 days is above target, the risk model needs recalibration before scaling volume.
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