In general, it is the capacity of an individual or entity to meet future obligations from earnings or income. In banking, it refers to a borrower’s capacity to provide for a loan from disposable income (by making principal and interest payments using one’s own resources). Lenders usually analyze the ability of a credit applicant to repay the loan along with interest. To that end, they carefully examine an applicant’s current income and expected future earnings (such as salary and other sources of disposable income for individuals and cash flows for businesses).
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