Which factor evaluates income and household expenses?

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Multiple Choice

Which factor evaluates income and household expenses?

Explanation:
Capacity is the factor that evaluates income and household expenses, because it measures the borrower's ability to repay by looking at earnings, debts, and ongoing costs. It answers whether, after meeting basic living expenses, there is enough income left to cover loan payments. This is part of the four Cs of credit used to assess loan risk. The other factors—collateral, capital, and character—pertain to security for the loan, net worth, and trustworthiness, not the direct income vs. expenses balance.

Capacity is the factor that evaluates income and household expenses, because it measures the borrower's ability to repay by looking at earnings, debts, and ongoing costs. It answers whether, after meeting basic living expenses, there is enough income left to cover loan payments. This is part of the four Cs of credit used to assess loan risk. The other factors—collateral, capital, and character—pertain to security for the loan, net worth, and trustworthiness, not the direct income vs. expenses balance.

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