Liquidity

Liquidity is assessed by lenders in order to evaluate the portion of a borrowers net worth that can quickly be converted to cash in the event of financial hardship. Examples of items that are considered liquid are Cash Deposit Accounts, CD's, Money Market Account, Publicly-traded Stocks & Bonds, Marketable Securities, Retirement Accounts and the Cash Value of life Insurance. All of these items can be converted to cash quickly and inexpensively, at or close to their actual value. Although other assets may provide for liquidity upon their sale or transfer, their actual liquidity is determined by how long it may take to sell or transfer the asset. For example, a consumer may own a home free and clear worth five hundred thousdand dollars, but it may take nine months to sell the home in order to have access to the cash value of the home. In times of financial hardship, this would be considered an unacceptable risk by a lender.