Callaghans, Create the Future
Published June 28, 2021

The 5 Cs of credit are at the heart of every credit decision! When determining whether to approve a loan, lenders consider the following:

  • Capital – This takes into consideration how much cash you have for a deposit and whether this is enough for the bank to feel comfortable to lend you the money.

  • Capacity- Banks look at whether your income is enough for you to afford the loan repayments. They also take into consideration your other liabilities and compare them against your income. Banks don’t assess your capacity based off the loan amount you’re applying for. Banks will add a buffer to the repayment amount to determine that if there were any changes in the market, would you have the capacity to still meet your repayments?

  • Collateral – securing a loan against the asset (ie. The house) gives the lender assurance that if the borrower defaults on their repayments, the lender can repossess the collateral. Having collateral for the loan may make it more appealing for lenders.

  • Conditions – this refers to what the borrower intends to use the loan funds for. The bank will look at what the purpose of the loan is for, for example a car loan or home loan.

  • Character – This is also referred to as credit history. The lender will look at a range of factors to determine your character including whether you pay your bills on time and whether you maintain your credit cards. They review your credit history to determine your trustworthiness and reputation.