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Default Rate

Default Rate

The default rate is the percentage of all outstanding loans that a lender has written off as unpaid after a prolonged period of missed payments. The term default rate–also called penalty rate–may also refer to the higher interest rate imposed on a borrower who has missed regular payments on a loan.

An individual loan is typically declared in default if payment is 270 days late. Defaulted loans are typically written off from an issuer’s financial statements and transferred to a collection agency.

The default rate of banks' loan portfolios, in addition to other indicators–such as the unemployment rate, the rate of inflation, the consumer confidence index, the level of personal bankruptcy filings, and stock market returns, among others–is sometimes used as an overall indicator of economic health.

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