What is the financial ability to repay a loan with present income called?

The ability to repay a loan with present income is referred to as capacity. This concept is critical in lending decisions, as it assesses whether an individual or entity has enough disposable income or financial resources to handle loan payments alongside their existing financial obligations. Lenders evaluate capacity primarily through income verification, debt-to-income ratios, and overall financial stability to ensure that the borrower can manage additional debt responsibly.

Creditworthiness, while related, encompasses a broader evaluation that includes credit history and overall financial behavior, not just income. Collateral refers to assets that can be pledged to secure a loan, and equity pertains to ownership interest in an asset after liabilities are deducted. Both collateral and equity do not directly address one’s income capacity to repay a loan. Thus, capacity is specifically focused on current financial ability, making it the correct answer.