Expected Loss Calculator
Credit risk expected loss.
Calculate credit expected loss from probability of default, exposure at default, and loss given default — the standard credit-risk three-factor model.
What this tool does
Expected loss is the standard credit risk equation: probability of default times exposure at default times loss given default. This calculator takes three inputs—probability of default (as a percentage), exposure at default (in your currency), and loss given default (as a percentage)—and returns the estimated expected loss amount in local terms. The result represents the average loss anticipated from a credit exposure over a given period, accounting for both the likelihood of default and the portion of exposure that would be lost if default occurs. Exposure at default drives the absolute loss amount most directly, while probability of default and loss given default determine how much of that exposure is at risk. The calculation is commonly used to inform credit reserves, loan loss provisioning, and portfolio risk assessment. This illustration assumes the three inputs are independent and does not account for correlations between defaults, changes in exposure over time, or recovery timing.
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Formula Used
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Disclaimer
Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.
Expected loss is a credit risk metric: the average loss you'd experience on a loan given the probability of default, exposure at the time of default, and loss given default (how much you can't recover). Basel banking framework uses this formula; insurance and lending firms use it daily for pricing and provisioning.
5% probability of default × 100,000 exposure × 40% loss given default = 2,000 expected loss. That's the amount the lender should price into interest rate as a credit spread. If the lender charges less than this, they're expected to lose money on average. Charging more creates profitable credit portfolio, but only if PD estimates are accurate.
PD is the hardest input. Historical default rates vary by industry, credit rating, and economic cycle. Investment-grade corporate: 0.1-1% annual. Sub-investment grade: 3-10%. Consumer personal loans: 5-15%. Mortgage default rates typically 1-3% in normal times, 5-10% in recessions. Always use recent vintages for current PD, not long-run averages.
A worked example
Try the defaults: probability of default of 5%, exposure at default of 100,000, loss given default of 40%. The tool returns 2,000.00. You can adjust any input and the result updates as you type — no submit button, no reload. That's the real power here: seeing how sensitive the output is to one or two assumptions.
What moves the number most
The result responds to Probability of Default %, Exposure at Default, and Loss Given Default %. Not every input has equal weight. Adjusting one input at a time toward extreme values shows which ones move the result most.
The formula behind this
Expected Loss = Probability of Default × Exposure at Default × Loss Given Default. Everything the calculator does is shown in the formula box below, so you can check the math against your own spreadsheet if you want.
What the score tells you
Headline financial numbers — income, savings, debt — each tell part of the story. This calculation stitches several together into a single read you can track over time. The value is in the direction, not the absolute number.
What this doesn't capture
The score is a composite of the inputs you provide. Life context — job security, family obligations, health, housing — doesn't appear in the math but shapes the real picture. Use the number as a prompt, not a verdict.
5% PD × ££100,000 EAD × 40% LGD = 2,000.00.
Inputs
This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.
Sources & Methodology
Methodology
The calculator computes expected loss by multiplying three components: probability of default, exposure at default, and loss given default. Probability of default is expressed as a percentage representing the likelihood a counterparty fails to meet obligations. Exposure at default is the total value at risk at the time of default. Loss given default is the percentage of that exposure not recovered through collateral, liquidation, or other means. The model applies these three factors as a straightforward product, following the standard credit risk framework. The calculation assumes each component is independent and stable over the time horizon. It does not model changes in default probability, recovery rates, or exposure levels over time, nor does it account for correlation between borrowers, concentration risk, or macroeconomic scenarios.
Frequently Asked Questions
Where to get PD estimates?
LGD by loan type?
Does this cover unexpected loss too?
Does this work for investment portfolios?
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