Net charge-off rate
The make-or-break number for any lending fintech.
- Formula
- Net charge-offs / avg loans outstanding (annualized)
- Unit
- %
- Models
- Fintech
| all-bank credit card | 4.17% | Federal Reserve; CFPB 2025 |
| subprime / fintech lenders | Materially higher than all-bank average of ~4.17% | Federal Reserve; CFPB 2025 |
What it is
Net charge-off rate (NCO rate) measures the annualized share of a loan portfolio that has been written off as uncollectible, net of any recoveries. It is expressed as net charge-offs divided by average loans outstanding, annualized.
How to calculate it
Calculate gross charge-offs for the period, subtract any recoveries on previously charged-off balances to get net charge-offs, divide by average loans outstanding during the period, and annualize (multiply by 12 / number of months if measuring a sub-annual period).
Why it matters
NCO rate is the primary credit-quality signal for any lending-adjacent fintech product. It directly reduces net interest margin and, at elevated levels, can impair the equity of the lending book. Investors and regulators use it alongside delinquency rates to assess underwriting quality and portfolio vintage risk.
Benchmarks & pitfalls
The Federal Reserve and CFPB reported an all-bank credit-card NCO rate of approximately 4.17% as of July 2025. Subprime and fintech lenders are noted to be materially higher than this all-bank average. NCO rate varies substantially by product type (credit card vs. personal loan vs. BNPL vs. business lending), customer segment, and vintage; comparing across product types without adjustment is misleading. Recoveries must be netted consistently — some operators report gross charge-offs only.