What four factors do lenders generally use when deciding whether to make a loan?

Lenders typically evaluate four main factors when considering whether to approve a loan: capacity, capital, collateral, and character.

Capacity refers to a borrower's ability to repay the loan, which is often assessed through income and existing debt levels to evaluate financial stability. Capital represents the borrower's personal investment in the loan, demonstrating commitment and reducing lender risk. Collateral is any asset that can secure the loan, providing a safety net for the lender in case of default. Lastly, character involves the borrower’s credit history and reputation, helping lenders gauge reliability and trustworthiness.

These four factors are essential in helping lenders make informed decisions about the potential risks and benefits of extending credit to a borrower. Other options may include various financial metrics or characteristics, but they do not encapsulate the comprehensive assessment that lenders prioritize in their decision-making process.