In the "Five C's of Credit," which C represents the borrower's ability to repay the loan?

The concept of the "Five C's of Credit" is a framework used by lenders to assess the creditworthiness of potential borrowers. In this context, "Capacity" specifically refers to the borrower's ability to repay the loan. It involves evaluating the borrower's income, employment stability, existing debt obligations, and overall financial situation to determine if they can meet the repayment terms of the loan without undue hardship.

Capacity is crucial because it provides lenders with insight into whether the borrower has sufficient cash flow to cover not only the loan payments but also any other expenses they may have. A borrower with strong capacity indicates a lower risk for lenders, as it suggests they are more likely to fulfill their financial commitments reliably.

In contrast, other aspects of the "Five C's of Credit" address different considerations. "Character" assesses the borrower's credit history and reliability; "Collateral" pertains to the assets that may back the loan, providing security for the lender; and "Capital" looks at the borrower's financial resources or wealth that can be used to support their borrowing needs. Thus, while these elements are also important in assessing creditworthiness, "Capacity" is the specific component that directly relates to the borrower's ability to repay the loan.