What process do lenders typically use to calculate the maximum loan a borrower can afford based on monthly payments?

The correct answer is found in understanding the concept of how lenders determine the maximum loan amount someone can afford based on their projected monthly payments. Lenders often utilize an amortization table, which outlines the breakdown of each monthly payment over the life of the loan. This table provides detailed information on how much of each payment goes toward principal and interest, allowing both the borrower and lender to see the long-term impact of the loan terms on monthly payments.

Using an amortization table helps lenders evaluate various loan scenarios, including interest rates and loan durations, and how these factors influence the borrower's affordability. By plugging in different loan amounts, interest rates, and terms, lenders can quickly calculate monthly payments and assess whether those payments fit within the borrower's budget.

In contrast, while budgeting analysis helps borrowers understand their financial situation and can influence their affordability calculations, it is not the primary tool lenders use. Risk assessment evaluates the overall creditworthiness and potential risk associated with lending to a specific borrower, but it does not directly calculate loan amounts. Finally, credit score evaluation plays a vital role in determining eligibility and loan terms but does not provide the specific calculation of how much a borrower can afford in monthly payments.