In economics, what is the ability of a borrower to repay a loan called?

Creditworthiness is the ability and likelihood of a borrower to repay a loan according to its terms.

Lenders assess creditworthiness before extending credit. They may examine income, existing debt, payment history, assets, employment stability, and the borrower’s record of meeting obligations. Credit reports and credit scores summarize some of this information, but lending decisions can also use documents and wider financial analysis.

Creditworthiness is different from collateral. Collateral is an asset pledged to secure a loan, while creditworthiness concerns the borrower’s expected ability and willingness to repay. Liquidity describes how easily assets can be converted into cash, and solvency concerns whether total assets exceed total liabilities over a broader period.

Strong creditworthiness can help a borrower obtain lower interest rates or larger loans. Weak creditworthiness may lead to higher rates, stricter conditions, or refusal. Credit assessment also creates information problems: lenders rarely know as much about a borrower’s finances and intentions as the borrower does.