Capital in the 5 C's of Credit refers to:

• A. The borrower's debt.
• B. The collateral value.
• C. The amount of money invested by the borrower.
• D. The interest rate.

Answer: (C)

Capital is the borrower's own money invested in the deal, showing how much equity the borrower has at stake. This personal investment signals commitment and provides a cushion for the lender if things go poorly, which lowers the lender’s risk. It also influences the loan terms by affecting the loan-to-value ratio—the higher the borrower's own funds, the lower the risk to the lender, and often the more favorable the terms.

Capital is not the amount of debt the borrower already carries, nor is it the value of assets pledged as collateral, and it isn’t the interest rate. The collateral value is about what assets secure the loan, while debt is what the borrower owes elsewhere. The interest rate is the cost of borrowing. Capital specifically refers to the borrower's own funds put into the purchase or project.