Free Essay On Five Cs Of Credit

(Institution Name)
There are five things that a lender considers before lending money to a potential borrower, and these points are called the five Cs of credit (Investopedia, 2016).
Capacity: This means that the ability of the borrower to meet e-pay back terms of the loan with interest. For example, a lender will lend money to a borrower who has the financial assets or employment that can help him paying back the lent money easily. The higher the capacity of the borrower, the larger the loan that can be taken.
Capital: The current financial position of the borrower is considered to see how much money does the borrower has to pay to other accounts to make sure that the borrower is in the position to pay the loan back in case of bankruptcy.
Collaterals: These are pledged assets of the borrower that he or she places a security for the lender. In case, the borrower fails to pay the lent money back to the lender, the lender reserves the right to acquire and sell off the collateral asset that can be a building, security or accounts receivable.
Conditions: These are the terms as to when and how much does the borrower pay to the lender. This includes the installments and the interest rate. With poor economic conditions, these terms become strict for the borrower to follow because of high uncertainty and risk.
Character: This is the history of the borrower in their previous transactions. This is to see if the borrower is a trustworthy person who pays the installments timely and does not involve in activities that can cause him or her bankruptcy (MCMF, 2016).
References