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Ability to Pay

Definition - What does Ability to Pay mean?

Ability to pay can simply be defined as the ability of a borrower or a tax payer to pay liabilities from whatever their earnings including income or other cash flows. There are multiple ways in which ability to pay may affect an individual’s financial standing.

Justipedia explains Ability to Pay

Ability to pay may also be defined as the ability of the borrower to clear all of his current and future debt. In banking terminology, ability to pay is also called “capacity.” It is an important factor that determines whether someone applying for a loan is eligible to receive it.

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