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Commonly Asked Questions about Lending Contracts

The lender will typically follow what is called the Five Cs of Credit: Character, Capacity, Capital, Collateral and Conditions. Examining each of these things helps the lender determine the level of risk associated with providing the borrower with the requested funds.
Include key terms of the loan, such as the lender and borrowers contact information, the reason for the loan, what is being loaned, the interest rate, the repayment plan, what would happen if the borrower cant make the payments, and more. The amount of the loan, also known as the principal amount.
The 6 Cs character, capacity, capital, collateral, conditions and credit score are widely regarded as the most effective strategy currently available for assisting lenders in determining which financing opportunity offers the most potential benefits.
Capacity assesses a borrowers financial ability to repay a loan, determined by evaluating their debt-to-income (DTI) ratio.
A loan is a sum of money that an individual or company borrows from a lender. It can be classified into three main categories, namely, unsecured and secured, conventional, and open-end and closed-end loans.
One of the first things all lenders learn and use to make loan decisions are the Five Cs of Credit: Character, Conditions, Capital, Capacity, and Collateral.
Students classify those characteristics based on the three Cs of credit (capacity, character, and collateral), assess the riskiness of lending to that individual based on these characteristics, and then decide whether or not to approve or deny the loan request.