Average Prepayment Probability

Written by Evispot. Posted in a, Glossary.

Prepayment or the churn rate, also known as the rate of attrition or customer churn, is the rate at which customers stop doing business with an entity. It is most commonly expressed as the percentage of service subscribers who discontinue their subscriptions within a given time period. For lenders churn rate is equal to people who move their current loan to another financial institution and pre-pays their outstanding debt, which might return a non-profitable situation for the first lender.

Hence should the probability of pre-payment be included in a bank’s profitability and pricing calculations. Each loan has a dynamic and individual risk of pre-payment but as of today the average pre-payment risk is used in the calculations.

© Evispot 2022 All rights reserved.

Machine learning in credit decisions

Leveraging machine learning for smarter lending and obtain insights into the technology behind 100% transparent machine learning models.

A link to download the file will be sent to your inbox.

Never see this message again.