In the 4 Cs of the Ability to Repay rule, which one is associated with the borrower's capability to handle loan payments?

The concept of "Capacity" directly relates to the borrower's ability to handle loan payments. It measures the borrower's financial ability to make the required loan payments on time. This includes evaluating their income, employment stability, debt-to-income ratio, and overall financial situation. A borrower's capacity is fundamental in determining whether they can afford a new loan without undue financial strain.

In the context of the Ability to Repay rule, capacity is crucial because it ensures that lenders assess whether a borrower can manage additional debt before extending credit. This helps prevent potential defaults, protecting both the lender and the borrower from the negative consequences of over-leveraging.

The other concepts in the 4 Cs, while important, focus on different aspects. Capital deals with the borrower's assets and savings, Character refers to the borrower's credit history and reliability, and Collateral involves any assets used to secure the loan. Each of these plays a role in the overall risk assessment but does not specifically evaluate the financial capacity to manage loan payments like Capacity does.