Loan Default Rate
Under European legislation, we have an obligation to inform investors about the rate of loan defaults, as well as the calculation methodologies. The aim is to accurately and transparently assess the risks associated with lending through crowdfunding. Read how default rates are calculated at Investown.
What is a failure rate?
The failure rate is Percentage of loanswhich have been at least once in a state of failure during the reporting period.
When is a loan considered a loan in default?
According to European legislation, a loan is considered to be loan in defaultif at least one of the following situations occurs:
1. Probability of non-payment
If there is any reason why we may believe that the client not paying off the loan in full, or fail to meet their financial obligations without the need for extraordinary steps — such as applying collateral.
2. Prolonged delay
The owner of the project is more than 90 days overdue with a substantial amount of the loan in question.
What the contract allows
If it is stated in the contract that the client (or also the project owner) may defer or change the installments (e.g. in the event of a delay in repayment), it is not considered a delay. In this case, a new payment schedule is followed.
Other situations in which a loan can be marked as a default
In addition to the above, the following scenarios are taken into account:
- Debt restructuring — for example, a significant reduction in the amount owed or deferred payments.
- Insolvency or bankruptcy — the owner of the project has applied for bankruptcy or has been granted judicial approval.
These cases are also translated into the calculation of the so-called. failure rates.
How is the failure rate calculated?
The failure rate is determined by the following formula:
Default rate (%) = (number of loans that failed at least once during the year/number of active loans at the beginning of the year) × 100
- They are being watched twelve-month period.
- It counts each loan separately according to a specific project.
- The amount of the loan does not affect -- every loan has the same weight.
- Short-term loans calculation do not distort.
What is the expected failure rate?
The expected failure rate is extrapolationwhich is based on historical data and trends. This is not an exact prediction, but a calculation based on the average failure rate over the past 36 months, or a shorter period.
Transparency and risk categorisation
We classify each loan in a specific risk categories. The default rate is then calculated separately for each of these categories and published in accordance with Article 20 of Regulation (EU) 2020/1503 of the European Parliament and of the Council.
What information we disclose
Every year we publish the failure rate of projects published on the platform in at least the past 36 months.
Until the end of April after the end of each financial year, we publish:
- the expected and actual default rate of all loans offered on the Platform by risk categories for the past period,
- a summary of the assumptions used to determine the expected default rate.
According to the legislation:
🔗 Regulation (EU) 2020/1503 of the European Parliament and of the Council, Article 20 (1)
🔗 Commission Delegated Regulation (EU) 2022/2115 of 13 July 2022, Article 1
Current published default rate data
Current 12-month and 36-month default rates for 2024 and 2023
Note: The 12-month default rate is calculated for loans that were active on the 1st of a given year and defaulted during the year.
Note: The 36-month default rate is calculated for loans that were active on 1 January 2023 and defaulted during 2023 or 2024.