NPL Distressed Debt Purchase Yield Calculator

Estimate return on equity from buying a non-performing loan (NPL) at a discount and recovering it through Korean court-auction dividends, reflecting the maximum claim cap, senior deductions, and acquisition-loan leverage.

Korea-related planning note

This English page is a planning estimate. If the topic involves Korean taxes, pensions, insurance, loans, or public programs, confirm the current Korean rules, limits, and eligibility before acting.

Scenario inputs

Adjust the assumptions to compare gross value, cost drag, tax drag, and downside value.

Net ending value

$1,379,304

Gross value before drag

$1,853,405

Estimated tax

$0

Fee and tax drag

$474,101

Total contributions

$255,000

Net gain

$1,124,304

440.9%

Downside value

$1,172,409

Scenario readout

Scenario remains positive after costs

This calculator is based on Korean rules (2026). Since the 25 July 2016 amendment to the Lenders Act (Act on Registration of Credit Business), individuals cannot directly buy NPLs; eligible buyers are registered lenders, financial institutions, or securitization companies (SPCs). Figures are pre-tax estimates.

Related calculators

What is the NPL Distressed Debt Purchase Yield Calculator?

A non-performing loan (NPL) is a loan claim that has been delinquent for three months or more, so the lender no longer collects interest and principal on schedule. Banks and savings banks sell these claims below face value to clean up their books, and the buyer takes over the mortgage (geun-jeodang) and recovers principal and interest through the court auction dividend.

This calculator is based on Korean rules (2026). Enter the loan principal, maximum claim amount, discounted purchase price, expected auction price, senior deductions, and acquisition-loan terms, and it returns the expected dividend, return on equity (ROE), annualized return, recovery rate, and the leverage effect versus an unleveraged purchase.

Instead of only showing “how much is left,” it also shows the purchase-price ratio (price versus principal), the recovery rate (dividend versus claim), and an auction-price sensitivity scenario, so you can review the risk structurally before investing.

Who needs this

  • • Investors buying mortgage-backed NPLs at a discount for auction dividend income
  • • Credit companies and securitization firms (SPCs) validating purchase ratio, recovery, and yield
  • • Investors modeling the leverage effect of an NPL acquisition loan (geun-jilgwon loan)
  • • Auction investors comparing dividend collection versus acquisition bidding (yuip)
  • • Individuals estimating the expected return of indirect NPL routes such as subrogation

The three-stage NPL profit structure

1. Discounted purchase — the purchase-price ratio

Buying an NPL with KRW 300 million of principal for KRW 255 million gives a purchase-price ratio of 85%. The lower the ratio (the deeper the discount), the larger the potential gain on recovery — but a weak collateral value or heavy senior claims can produce a loss even at a low purchase price.

2. Dividend recovery — maximum claim and senior claims

As the mortgage holder, the buyer joins the auction dividend. The dividend is limited two ways. First, the claim amount is principal plus overdue interest, but it cannot exceed the maximum claim amount (the registered mortgage cap). Second, the distributable amount is the expected auction price minus amounts paid ahead of you — auction costs, minimum priority payments (small-lease deposits, unpaid wages), current-year taxes, and senior claims. The expected dividend is the smaller of the two.

3. Leverage — the acquisition loan

NPL purchases are often funded with a loan secured by a pledge over the claim (geun-jilgwon). Borrowing around 80% of the price cuts your equity and sharply raises ROE, but a delayed dividend or a lower auction price makes interest amplify the loss. The calculator shows the unleveraged and leveraged returns side by side so the leverage effect (in percentage points) is clear.

Core formulas

Claim amount = min(principal + overdue interest, maximum claim amount)

Distributable = max(0, expected auction price − senior deductions)

Expected dividend = min(claim amount, distributable)

Recovery rate = expected dividend / claim amount × 100

Purchase-price ratio = purchase price / principal × 100

Financing cost = loan × annual rate × (holding months / 12)

Equity invested = purchase price − loan + incidental costs

Net profit (pre-tax) = dividend − price − incidental − financing

ROE = net profit / equity invested × 100

Annualized = ROE × (12 / holding months)

The annualized figure uses simple scaling by holding period, not compounding IRR. A short recovery with high leverage can push the annualized number into triple digits; treat it as a reference value that assumes repeated reinvestment.

Worked example

Principal KRW 300M, maximum claim KRW 360M, overdue interest KRW 20M, purchase price KRW 255M, incidental costs KRW 5M, expected auction price KRW 330M, senior deductions KRW 15M, 8-month holding, KRW 200M loan at 7%.

  • • Claim amount = min(320M, 360M) = KRW 320M
  • • Distributable = 330M − 15M = KRW 315M; expected dividend = min = KRW 315M
  • • Purchase-price ratio = 85.0%; recovery rate = 98.4%
  • • Financing cost = 200M × 7% × 8/12 = KRW 9.33M
  • • Equity invested = 255M − 200M + 5M = KRW 60M
  • • Net profit = KRW 45.67M; ROE = 76.1%; annualized = 114.2%
  • • Unleveraged return = 55M / 260M = 21.2%

How to use the calculator

Step 1: Claim information

Enter the principal, maximum claim amount, and overdue interest. Sample buttons (apartment, retail, small villa) load example values quickly.

Step 2: Purchase and auction terms

Enter the discounted purchase price, incidental costs, expected auction price, and senior deductions, and set the holding period. The purchase-price ratio updates instantly.

Step 3: Leverage

If you use an acquisition loan, turn on the toggle and enter the loan amount and annual rate. The LTV is shown automatically.

Step 4: Read the results and scenarios

Review ROE, annualized return, expected dividend, and recovery rate, then use the auction-price scenario chart to compare conservative, base, and optimistic cases.

Strategy: dividend collection vs acquisition bidding

Dividend collection

After buying the claim, if a third party wins the auction you collect the dividend as the mortgage holder. This works when the auction price comfortably covers the claim, and the recovery timing is relatively predictable. It is the default model of this calculator.

Acquisition bidding (yuip)

If the dividend alone cannot recover the principal, or the property looks undervalued, the creditor bids directly and takes ownership. The claim can be offset against the winning bid, and the investor targets extra profit from renovation and resale. To model the resale profit, use an auction profit-analysis calculator alongside this one.

Individuals cannot buy NPLs directly (Lenders Act)

Important: since the 25 July 2016 amendment to the Lenders Act (Act on Registration of Credit Business and Protection of Finance Users), individuals cannot directly buy mortgage-backed NPLs from financial institutions.

  • • Article 2(1): taking assignment of loan claims and collecting them as a business (“credit-claim purchase and collection”) requires registration as a credit business.
  • • Article 9-4(3): a credit business or lending financial institution may not assign a loan claim to anyone other than a registered credit business, financial institution, or entity designated by Presidential Decree.

In practice, NPL buyers are lending financial institutions, registered credit companies, and securitization firms (SPCs). Individuals participate only indirectly — through SPC equity or funds, subrogation to obtain creditor status, or forming a registered credit corporation. This calculator assumes an eligible buyer or a subrogation scenario.

Tax note

When the buyer is a corporation (a credit company or SPC), the dividend gain (dividend minus purchase price) is corporate-tax income. For an individual who acquires a claim through subrogation, the character of the recovery gain can vary case by case, so taxability cannot be stated flatly. The calculator therefore reports pre-tax returns; confirm the actual tax with a professional based on the buyer type and claim character.

Frequently asked questions

Q. What purchase-price ratio is appropriate?

A. It depends on collateral value, senior claims, and the auction outlook. Deals typically clear around 70–90% of principal, but what matters is how far the expected dividend exceeds the total cost (price plus incidental and financing costs). Check the recovery rate and net profit together.

Q. Do I use principal or the maximum claim amount?

A. The dividend is capped at the maximum claim amount. Principal and overdue interest are summed, but anything above the cap cannot be collected, so the calculator sets the claim amount to min(principal + overdue interest, maximum claim).

Q. What goes into senior deductions?

A. Everything paid ahead of you: auction costs, small-lease priority deposits, up to three months of unpaid wages, current-year taxes, and mortgages or tax claims senior to yours. Reflect the rights analysis and dividend-priority review.

Q. Why is the annualized return above 100%?

A. It can appear with a short recovery and high leverage. Scaling a sub-one-year holding to an annual basis inflates the figure. In reality, reinvestment and deal sourcing are limited, so judge it alongside the unleveraged return and the absolute net profit.

Estimate your NPL yield now

Enter principal, purchase price, auction price, and loan terms to see ROE and annualized return instantly.

Pair it with an auction or public-auction profit-analysis calculator to review the full path from purchase to dividend or resale. This is a Korea-based (2026) reference estimate.