Realized credit-loss amount equal to gross charge-offs minus recoveries on previously charged-off debt.
A net charge-off (NCO) is the amount of charge-offs remaining after recoveries on previously charged-off debt are subtracted. It is one of the clearest realized-loss measures in lending because it shows how much credit deterioration actually remained after collection efforts.
Gross charge-offs alone can overstate realized loss if lenders later recover part of the written-off balance. Net charge-offs matter because they show the credit loss that remains after those recoveries are taken into account.
The basic calculation is:
The result is a dollar-loss measure, not a percentage by itself. That is why it often feeds directly into Charge-Off Rate calculations.
| Component | What it means |
| — | — |
| Gross charge-off | Debt written off as uncollectible |
| Recoveries | Cash later collected on previously charged-off debt |
| Net charge-off | Remaining realized loss after those recoveries |
A lender charges off $500,000 of loans but later recovers $100,000 through collections or asset sales. The net charge-off is $400,000. That $400,000 is the realized credit loss figure that remains after recovery activity.
Net charge-off is a dollar amount. Charge-Off Rate scales losses against the size of the loan portfolio.
Two lenders can post the same gross charge-offs but different net charge-offs if one recovers more on written-off debt than the other.
Charge-Off: Loss-recognition event that feeds into the gross side of the calculation.
Charge-Off Rate: Portfolio metric often built from net charge-offs.
Debt Recovery: Collection activity that can reduce net loss through recoveries.
Loan Loss Provision: Reserve-building expense often compared with realized credit losses.