Yield

What is Yield?

In lending, yield is the return a lender earns on a loan or portfolio of loans, typically expressed as an annual percentage of the outstanding principal. It represents the lender's revenue from interest charges, fees, and other income generated by their credit products — and is the primary measure of a lending business's financial performance.

How Yield Is Calculated

Yield is calculated by dividing the total income earned from a loan portfolio (interest + fees) by the average outstanding principal, then annualizing the result. For example, if a lender earns $50,000 in annual income on a portfolio with $500,000 in average outstanding balances, the yield is 10%.

Yield vs. Profitability

Yield measures gross returns, not profitability. To determine actual profit, a lender must subtract their cost of capital (the cost of funding the loans), credit losses (defaults), operating expenses (technology, salaries, compliance), and customer acquisition costs. A high yield doesn't guarantee profitability if losses or costs are also high.

Key Takeaways

• Yield is the annual return a lender earns on outstanding loans
• It includes income from interest, fees, and other charges
• Yield is a gross metric — profitability requires subtracting costs and losses
• It's the primary performance measure for lending businesses