Probability of default models

Probability of Default (PD) models are tools used by lenders to estimate the likelihood that a borrower will fail to repay a loan within a specific period. By analyzing factors like credit history, income, and financial behavior, these models assign a percentage risk, helping lenders make informed decisions about lending and set appropriate interest rates. Essentially, PD models quantify the chance someone won’t pay back their debt, supporting responsible lending and risk management.