What does the term 'credit capacity' refer to?

Credit capacity refers to the maximum amount a person can borrow. This concept takes into account an individual’s creditworthiness, income, existing debt, and overall financial situation. Lenders assess credit capacity to determine how much money they are willing to lend to a borrower without overextending their financial resources. It essentially reflects the borrower's ability to repay a loan based on their current financial standing.

An individual's job status, while relevant to overall financial health, does not directly define their borrowing limit. Interest rates, offered by lenders, indicate the cost of borrowing rather than the amount that can be borrowed. Lastly, the speed at which a loan can be approved relates to the efficiency of the lending process, not the borrowing limit itself. Therefore, the focus on the maximum borrowing amount truly encapsulates the essence of credit capacity.