Probability of Default (PD)

Probability of Default (PD) is a measure used by lenders to estimate the likelihood that a borrower will fail to repay a loan fully and on time within a specific period. It’s an expressed percentage reflecting the chance of default, based on factors like financial history, current financial situation, and economic conditions. A low PD indicates a borrower is less likely to default, while a higher PD suggests greater risk. Lenders use PD to assess and manage credit risk, helping them decide whether to approve a loan and at what interest rate.