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Investment Knowledge Chapter 5

Investment Knowledge Chapter 5

Credit Criteria (The 5 Cs of Credit) is a condition that financial institutions use to approve credit. Most financial institutions assess the borrower’s potential and repayment ability. By analyzing the following 5Cs data:

1. Character is an analysis of the borrower’s unique characteristics such as status, education, age, job duties loan payment history to determine the creditworthiness of the borrower and the intention of repaying the loan

2. Capacity is an analysis of the ability to pay debts. Most of them are based on financial status such as salary, other income, debt burden, credit information, average expenses. number of dependents, etc.

3. Collateral is the analysis of collateral or assets used as collateral for borrowings or guarantors. In order to reduce the risk in the event that the borrower violates the conditions such as applying for a home loan, the home purchased will be used as collateral.

4. Capital is the analysis of capital. Financial institutions will assess the borrower’s funds from assets ( Asset ) or net wealth ( Net Worth ) , which may be analyzed from the information in Application for credit ( Credit Application ) and related financial information such as deposit accounts, sources of income, etc.

5. Condition is the analysis of environmental factors. that will affect loan repayment, such as economic conditions, etc.

Source: 365+1 Book of Finance and Investment Vocabulary