In an affordability check, which element is used to assess the borrower's capacity to repay?

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Multiple Choice

In an affordability check, which element is used to assess the borrower's capacity to repay?

Affordability checks focus on whether the borrower can sustain repayments given their income and existing commitments. The element used to gauge capacity to repay is the debt-to-income (DTI) ratio. It measures how much of the borrower’s gross monthly income is consumed by debt payments, including the proposed loan, letting the lender see how much income remains for new payments. A lower DTI means there’s more financial headroom to cover the loan, while a high DTI signals tighter finances and higher default risk. The other options don’t directly assess ongoing repayment ability: securing a lien is about collateral, pre-approval is a loan eligibility process, and a vehicle value assessment looks at asset value rather than repayment capacity.

Affordability checks focus on whether the borrower can sustain repayments given their income and existing commitments. The element used to gauge capacity to repay is the debt-to-income (DTI) ratio. It measures how much of the borrower’s gross monthly income is consumed by debt payments, including the proposed loan, letting the lender see how much income remains for new payments. A lower DTI means there’s more financial headroom to cover the loan, while a high DTI signals tighter finances and higher default risk. The other options don’t directly assess ongoing repayment ability: securing a lien is about collateral, pre-approval is a loan eligibility process, and a vehicle value assessment looks at asset value rather than repayment capacity.

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