In credit evaluation, which component refers to a borrower's assets and net worth?

In credit evaluation, which component refers to a borrower's assets and net worth?

• A. Character
• B. Capacity
• C. Capital
• D. Conditions

Answer: (C)

Capital refers to the borrower's assets and net worth. It shows the financial cushion the borrower has—savings, investments, property, and other assets minus any debts—which indicates how much skin in the game they have and how well they could cover payments if income drops or unexpected costs arise. A strong capital position suggests lower risk for the lender and can lead to more favorable loan terms. The other aspects focus on different dimensions: character is about trustworthiness and credit history; capacity assesses the ability to repay based on income and existing debts; conditions relate to the loan’s purpose and external factors. Capital is the only one that directly addresses assets and net worth.

Capital refers to the borrower's assets and net worth. It shows the financial cushion the borrower has—savings, investments, property, and other assets minus any debts—which indicates how much skin in the game they have and how well they could cover payments if income drops or unexpected costs arise. A strong capital position suggests lower risk for the lender and can lead to more favorable loan terms. The other aspects focus on different dimensions: character is about trustworthiness and credit history; capacity assesses the ability to repay based on income and existing debts; conditions relate to the loan’s purpose and external factors. Capital is the only one that directly addresses assets and net worth.