How financial ratios impact lending

Question

Accepted Answer

Financial ratios impact lending by providing insight into a borrower's financial health and ability to repay loans.

Financial ratios such as debt-to-income ratio, debt-to-equity ratio, and current ratio are used by lenders to assess a borrower's creditworthiness.
These ratios help lenders determine the borrower's ability to repay the loan and manage their finances.
For example, a high debt-to-income ratio may indicate that the borrower has too much debt and may struggle to make loan payments.
On the other hand, a low debt-to-equity ratio may indicate that the borrower has a strong financial position and is less risky to lend to.
Lenders use financial ratios in combination with other factors such as credit score and employment history to make lending decisions.

Accepted Answer

The higher the loan-to-value ratio, the higher the risk. The higher the risk, the higher the return (compensation) a lender will claim in return for the loan issuance. So, borrowers with higher LTV ratios will pay more interest compared to those with a lower LTV ratio.

Accepted Answer

Financial ratios impact lending by providing insight into a borrower's financial health and ability to repay loans.

Financial ratios such as debt-to-income ratio, debt-to-equity ratio, and current ratio are used by lenders to assess a borrower's creditworthiness.

These ratios help lenders determine the borrower's ability to repay the loan and manage their finances.

For example, a high debt-to-income ratio may indicate that the borrower has too much debt and may struggle to make loan payments.

On the other hand, a low debt-to-equity ratio may indicate that the borrower has a strong financial position and is less risky to lend to.

Lenders use financial ratios in combination with other factors such as credit score and employment history to make lending decisions.

Accepted Answer

Check Customer obligation of repayment

check customer income source

Business income worth

How financial ratios impact lending

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