BANKING AFFAIRS

Detailed explanation-1: -Capacity measures the borrower’s ability to repay a loan by comparing income against recurring debts and assessing the borrower’s debt-to-income (DTI) ratio. Lenders calculate DTI by adding a borrower’s total monthly debt payments and dividing that by the borrower’s gross monthly income.

Detailed explanation-2: -Capacity. To evaluate capacity, or your ability to repay a loan, lenders look at revenue, expenses, cash flow and repayment timing in your business plan. They also look at your business and personal credit reports, as well as credit scores from credit bureaus such as Equifax, Experian and TransUnion.

Detailed explanation-3: -Called the five Cs of credit, they include capacity, capital, conditions, character, and collateral. There is no regulatory standard that requires the use of the five Cs of credit, but the majority of lenders review most of this information prior to allowing a borrower to take on debt.

Detailed explanation-4: -In the 5 C’s of credit, capital refers to your financial ability to meet credit obligations. In the 5 C’s of credit, collateral is an asset that you pledge to a financial institution to obtain a loan. In the 5 C’s of credit, conditions refers to general economic conditions that can affect your ability to repay a loan.

Detailed explanation-5: -The 5 Cs are Character, Capacity, Capital, Collateral, and Conditions. The 5 Cs are factored into most lenders’ risk rating and pricing models to support effective loan structures and mitigate credit risk.