In determining the financing, three fundamental guidelines should be noted:
Character: refers to how the person has handled past debt obligations. We must be able to look into the future to determine the likelihood that the customer will repay the loan as agreed. In the case of character, it is often very true that the past is a good predictor of the future. Making the decision more complicated is assessing if poor credit history was deliberate, or if it was caused by circumstances beyond the customer’s control, such as an illness or loss of a job
Capacity: refers to how much debt a borrower can comfortably handle. It is often much more complicated than simply looking at current income and debt levels. What is the likelihood that the income could change dramatically placing the loan repayment in jeopardy?
Capital: If income is suddenly and unexpectedly unavailable to make the payments, does the customer have a sufficient net worth or other assets that could be disposed of to pay off the debt?