Expected Loss

The average loss a lender anticipates on a loan portfolio, calculated as probability of default times loss given default times exposure.

Example

6% x 80% x 50,000 = 2,400 of expected loss.

It is the number a headline interest rate leaves out, and it decides how much of that rate you actually keep.

Probability of Default (PD) — The likelihood that a borrower fails to repay within a given period, usually a year.
Loss Given Default (LGD) — The share of a loan's value that is lost when a borrower defaults, after recoveries.

Interest minus expected losses minus fees — A lending return is the interest collected, less the share of principal lost to defaults after recoveries, less fees. Expected loss is the number the headline rate leaves out. (12 min)
A loan's rate is a stack: base rate, expected loss, illiquidity and fees — Private loans are priced by building up from a risk-free rate, adding compensation for defaults, for being unable to sell, and for the intermediary. Values between lending and repayment are mostly estimates. (11 min)
In fintech, regulation, partners and losses matter as much as the product — Financial technology companies depend on licences or partner banks, earn thin margins on large volumes, and can face fraud and credit losses that do not appear until later. Evaluating them means looking beyond growth to compliance and loss rates. (11 min)