So What Are the 3 C’s?
The three biggest factors lenders consider are:
- Credit
- Capacity
- Collateral
Credit & Character
This is all about trust. It’s like loaning something valuable to a friend, you only lend it if you trust them. Lenders do the same thing by looking at your credit history, employment stability, and overall financial behavior.
The term “character” is misleading. They aren’t judging if you’re good or bad person, only whether your financial character shows responsibility and stability based on your credit profile.
What Is Capacity?
Capacity is your ability to repay the loan. Lenders analyze your income and especially your Debt-to-Income Ratio (DTI).
The more documentation you can provide to prove your income such as paystubs, W-2s, or bank statements then the more loan options you qualify for, typically with better terms.
Learn about your Debt-to-Income Ratio
What Is Collateral?
Collateral is something of value you offer the lender in case you do not repay the loan. Think of it like promising your friend they can keep your favorite item if you don’t return theirs.
Common forms of collateral include vehicles, homes, or other valuable assets. Not all loans require it, but having collateral usually leads to better interest rates and overall terms.
Remember
The 3 C’s are the foundation of lending decisions. The more evidence you have to support **Credit**, **Capacity**, and **Collateral**, the more likely you are to receive favorable offers from lenders.