A Credit Policy is a set of guidelines / lending criteria that lenders abide by when providing a loan product. It is put in place by them to manage their risks and to comply with legislations. This is usually framed by the 5 C’s of credit.
The first one is Conditions (economic conditions) so it does not form part of our application process.
The remaining 4 C’s of credit that we work with are:
Character – stability of residence and employment, unresolved legal issues, savings history, credit history/credit rating;
Capacity – ability to repay the new loan based on verified income, debt and expenses;
Capital – net worth (total assets minus total liabilities) which demonstrates ability to manage financial affairs; and
Collateral – the value of, and risk associated with the value of the asset which the credit provider can take ownership of and sell to pay the debt if the borrower defaults and cannot make the agreed loan repayments.