Do Now: If you were going to give someone a loan, what would be some factors you would consider?

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Presentation transcript:

Do Now: If you were going to give someone a loan, what would be some factors you would consider?

factors that determine if a lender will extend credit 1.Character – Trustworthy: Will you repay? Other outstanding debt? Stable: How long at current job and address?

1.Capacity Is income enough to repay loan? Debt To Income Ratio (DTI)– how much of income is used to pay debt? DTI Ratio Calculation = Monthly Debt Payments /Monthly Income 2.Capital What is your income? What is your net worth? Net Worth = assets – liabilities Assets – things you own ex. car, house Liabilities – amount owed ex. Loans, credit card debt

3.Collateral Items used to “back” the loan Don’t repay  lender takes collateral Examples: home, car 4.Credit History Have you used credit? Have you repaid? Credit Report – summary of outstanding and past credit Credit Rating - measure of ability and willingness to pay on time (based on all 5 “C’s”)