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How do I calculate the debt-to-income ratio for my car loan?
I've read that the debt-to-income ratio is important for getting a car loan, provided it stays at 43% or less. How do I calculate my debt-to-income ratio?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
The debt-to-income ratio is a major factor in
car loan
approval because it helps determine your risk for defaulting on the car loan. It’s surprisingly simple to calculate.To figure out your debt-to-income ratio:
- Add up all of your monthly debt payments (this is the minimum monthly payment for credit cards)
- Add together all of your pre-tax income
- Divide the debt by the income to get your debt-to-income ratio
- Multiply this by 100 to get a percentage
For example, let’s say your debt is $2,200 a month and your pre-tax income is $7,000 per month. Your debt-to-income ratio would be $2,200/$7,000 = .314 or 31.4%. If you’re getting a car loan and you have strong credit and steady income, this ratio would almost certainly net you a car loan.
Don’t forget that when you finance a car, the lender will require full coverage car insurance, so you have to budget accordingly. Use the
Jerry
app to find the best prices on car insurance. Jerry compares personalized rates from over 50 top car insurance companies, including Nationwide, Allstate, and Travelers, and delivers the best deals to your phone in minutes for free. The average Jerry driver saves $879 a year on car insurance!View full answer
- Gregory R.
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