The debt-to-ratio income is a measure of the amount of debt you have relative to your income. You calculate it by dividing your total monthly debt payments by your gross monthly income as a percentage. The lower the percentage rate the better, the higher the rate is considered a high risk for being able to repay the loan.
Lenders use debt to ratio to find out the risk level of the individual. The percentage usually greater than 30% is almost always a rejected loan application such as applying for a mortgage. Auto loan vendors may require you to have 36% or less to be approved for a new car loan.
This is why it is important to know your debt-to-ratio before applying for another loan. Make sure you are financially set and able to take on a loan if necessary.
Try our app Paycheck Analysis to run simulations with debt to ratio, mortgage payments, paycheck estimates, and more.