What is a Debt-to-Income Ratio?

It IMG_1109just makes sense that you need to be making more money than you’re spending on bills, debts and loans, but how much more money do you need to make? And what does that look like? Along with a credit score, a debt-to-income ratio is a number you should know when looking at personal finances and taking out loans.

Debt-to-Income Ratio

A debt-to-income ratio is a number that lenders use to measure your ability to repay the money you have borrowed. To calculate your ratio, you will add up all your monthly payments and divide that total by your gross monthly income.

A lender often looks at your debt-to-income ratio to determine whether or not you will be able to make your monthly payments. A low ratio indicates a good balance between your debt and income, so it means you will likely be able to make your payments. However, the higher the ratio is, the more of a risk it is for the lender to loan money to that borrower.

A debt-to-income ratio is another number you will want to know before going to get a loan. The best thing you can do is be knowledgeable about your options so you can pick the loan that is right for you.

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