Break-even interest rate for your loan book
Enter your loan figures to see the lowest rate that covers defaults and what your current rate earns.
Break-even rate
At 18%, the €5,000,000 loan book makes €64,000 a year, and defaults could rise to 5.38% before it loses money.
Rate breakdown
Break-even rate by default rate
The dashed line marks the rate charged now. Past the crossing, defaults are not covered.
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Show the formulas
Loss rate = Default rate × (1 − Share recovered) Costs as share = Running costs ÷ Loan book Break-even rate = (Cost of funds + Costs as share + Loss rate) ÷ (1 − Default rate) Profit wanted: Rate with profit = Break-even rate + Profit wanted ÷ (1 − Default rate) Profit or loss a year = Loan book × ((1 − Default rate) × Rate charged now − Loss rate − Cost of funds − Costs as share) Highest default rate covered = (Rate charged now − Cost of funds − Costs as share) ÷ (Rate charged now + 1 − Share recovered)
The calculation covers one year across the book, with no fees, taxes, early repayment or interest from defaults.
Break-even interest rate explained
A break-even interest rate is the lowest rate that covers the cost of funds, running costs and losses on defaults. This calculator uses your loan book, annual costs, default rate and recovery share.
The result shows whether the rate charged now covers those costs and what the book earns at that rate. Change the figures to see how the break-even rate moves as defaults change.
Common questions
What is a break-even interest rate for a lender?
It is the interest rate at which interest from loans that do not default covers losses, cost of funds and running costs. The calculator also shows the rate with the profit wanted.
How do defaults affect a loan's break-even rate?
A higher default rate raises losses and leaves fewer loans paying interest. The calculator reflects both effects in the break-even rate.
How does loan recovery change the break-even rate?
The loss rate is the default rate multiplied by the share not recovered. A higher recovery share lowers losses on defaults and the break-even rate.
What does my current interest rate earn on the loan book?
The calculator works out yearly profit or loss from the loan book, rate charged now, defaults, recovery, cost of funds and running costs. The result shows the highest default rate that rate still covers.
How do running costs affect the minimum interest rate?
Running costs are divided by the loan book to get their share of it. That share contributes to the break-even rate.