Probability of default curve

The probability of default (PD) curve shows how likely a borrower is to fail to repay a loan over time. It maps the chance of default at different points, typically increasing as the borrower’s financial situation worsens or as more time passes without repayment. This curve helps lenders assess risk, set interest rates, and make informed lending decisions. Essentially, it provides a visual and statistical way to understand and predict when or if a borrower might default on a loan.