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What is a debt to income ratio for a car loan?
What does a debt to income ratio mean? I want to take out a loan to purchase a car, but my friend said I will get approved if I have a low debt to income ratio.
Phoebe Mah · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Your friend is correct, a lower debt to income ratio will increase your chances of getting approved for a loan. When you apply for a car loan, lenders compare how much you earn with how much debt you owe.
Your DTI ratio is calculated by taking your monthly debt payments and dividing that by your monthly income. For example, if you make $6000 a month and make payments of $1,800 a month, your DTI ratio would be 30%.
In other words, 30% of what you earn in a month goes towards making these monthly financial payments.
The highest DTI ratio most lenders will accept is 43%. However, the limit varies. Ideally, they prefer if their borrowers have a DTI ratio less than 36% as they want to ensure a borrower can repay the
loan
. Even so, a higher DTI doesn’t mean you can’t get a loan, as lenders also look at things like your credit score and history. To ensure you’re getting the best loan for you, make sure you shop around with multiple lenders before signing a contract.
Remember, most lenders require full coverage car insurance. If you want to save money on coverage, the
Jerry
app is a good place to start. A licensed broker that offers end-to-end support, Jerry gathers affordable quotes to ensure you’re always getting the best rate and coverage. View full answer
- Gregory R.
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