Percentage of a defaulted exposure that is ultimately recovered through collections, collateral proceeds, restructuring, or other workout actions.
The recovery rate is the percentage of a defaulted loan or other credit exposure that is ultimately recovered. It measures how much value a lender, investor, or workout process manages to recapture after a borrower has already failed to perform.
Recovery rate matters because credit loss is not only about whether a borrower defaults. It also depends on how much can still be recovered afterward through collections, collateral liquidation, restructuring, or other workout actions.
The basic logic is:
Higher recovery rates reduce realized loss severity. Lower recovery rates mean more of the defaulted exposure turns into economic loss.
| Metric | What it captures |
| — | — |
| Default Rate | How much of a portfolio enters default |
| Recovery Rate | How much value is recovered after default |
| Net Charge-Off | Realized loss amount after recoveries are considered |
A lender has a $100,000 defaulted loan and eventually recovers $40,000 through collections and collateral proceeds. The recovery rate is 40%. The remaining unpaid portion contributes to realized credit loss.
A cure rate focuses on loans returning to current status before full failure. Recovery rate focuses on value recaptured after default or severe nonperformance has already occurred.
If recovery rate goes up, realized loss severity usually goes down, all else equal.
Default Rate: Measures how much of the portfolio has entered default.
Net Charge-Off: Dollar-loss measure after recoveries are netted against charge-offs.
Charge-Off Rate: Portfolio-loss metric often analyzed alongside recovery performance.
Debt Recovery: Collection and workout activity that can improve recovery results.