Which statement defines the term capacity? A. a borrower's willingness to repay a loan B. a borrower's ability to repay a loan C

Question

mestny [16]

3 years ago

15

Which statement defines the term capacity? A. a borrower's willingness to repay a loan B. a borrower's ability to repay a loan C

. a borrower's total assets

Mathematics

1 answer:

nata0808 [166] · Answer 1 · 2022-05-16T20:20:21+03:00

Answer:

B. A borrower's ability to repay a loan

Step-by-step explanation:

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 together a borrower's total monthly debt payments and dividing that by the borrower's gross monthly income. The lower an applicant's DTI, the better the chance of qualifying for a new loan. Every lender is different, but many lenders prefer an applicant's DTI to be around 35% or less before approving an application for new financing.