Calculate Your Own Debt-to-Income (DTI) Ratio
This calculator can help you estimate your DTI ratio based on your income and debts.
Use your gross monthly income (before taxes)
Try to add up all of your recurring expenses such as other loans and your housing payment.
This calculator is for estimating purposes only. We cannot guarantee your lender-calculated debt-to-income ratio or how it will impact your ability to be approved for financing.
What is Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) Ratio is a measure used to assess an individual’s ability to manage their financial debts. It is calculated by dividing the total amount of the individual’s monthly debt payments by their gross monthly income, expressed as a percentage.
This ratio helps lenders determine how much someone can realistically borrow, and serves as an indicator of financial health. It is often used in the preapproval process along with factors like your credit score to determine the risk of lending.
A higher ratio indicates that the individual has more debt relative to their income, while a lower ratio is indicative of more manageable debt levels.
Debt-to-Income (DTI) Ratio Formula
DTI is calculated by dividing the total amount of the individual’s monthly debt payments by their gross monthly income, expressed as a percentage.
Total Monthly Debt ÷ Gross Monthly Income = DTI
DTI Calculation Example
Let’s walk through an example DTI calculation to show how you may want to itemize your income and debts to approach using our calculator.
Monthly Debt Expenses
- Rent: $900
- Student Loan: $350
- Credit Card Payment: $150
- Total: $1,400
Monthly Income
- Salary: $4,500
- Self-Employed Side Business: $600
- Total: $5,100
Now, let’s plug those totals into the formula:
$1,400 ÷ $5,100 = 27.5%
Types of DTI Ratios
The calculation for debt-to-income is fairly straightforward, but there are actually two types of DTI: Front-end and Back-end.
Auto lenders will typically look at the back-end DTI for potential buyers.
Front-end DTI
Only housing costs are included in front-end debt-to-income. This would include many different expenses, such as rent/mortgage, HOA fees, insurance, and property tax. However, it doesn’t include any other expenses that are considered debts.
Back-end DTI
Far more expenses are considered with back-end debt-to-income. This includes all of the expenses that front-end does, as well as other loans and legal obligations like child support or alimony. However, this still does not typically include utilities or regular spending.
Payment-to-Income (PTI)
Similar to DTI, your payment-to-income ratio divides your debt by your income. But in PTI, your debt is limited specifically to your monthly car payment.
What is a Good DTI Ratio for a Car Loan?
When it comes to getting approved for a car loan, your DTI plays an important role because lenders want to ensure that you have enough money left after your monthly payment to cover other expenses.
Generally, if you have a DTI ratio of 43% or less, auto lenders see you as likely able to repay your debts.
If your DTI ratio is lower, especially when you get into the mid-30% range or below, you’ll be seen as a less risky borrower.
However, if you have some financial wiggle room in your budget and can easily maintain the regular payments required for the car loan, your lender may accept a higher DTI ratio and be able to adjust your loan term and payment to accommodate.
How to Improve Your Debt-to-Income Ratio
Improving your debt-to-income ratio really boils down to two things: increase your income and/or decrease your debts.
Take inventory of your debts – Understanding what debts you have can help you prioritize what to pay down to make the most impact.
Take steps to improve your income – This could mean negotiating higher pay at work, starting that side hustle you’ve been thinking about, or other methods.
Debt-to-Income Frequently Asked Questions (FAQs)
What is Debt-to-Income (DTI) Ratio?
The Debt-to-Income (DTI) Ratio is a measure used to assess an individual’s ability to manage their financial debts. It is calculated by dividing the total amount of the individual’s monthly debt payments by their gross monthly income, expressed as a percentage.
How Is Debt-to-Income Ratio Calculated?
DTI is calculated by dividing the total amount of the individual’s monthly debt payments by their gross monthly income, expressed as a percentage. Total Monthly Debt ÷ Gross Monthly Income = DTI
What is an Acceptable Debt-to-Income Ratio for a Car Loan?
Generally, if you have a DTI ratio of 43% or less, auto lenders see you as likely able to repay your debts. Lower is better in a lender’s eyes, where having a DTI ratio in the mid-30% range or below would be seen as less risky.
Can I Buy a Car with a High Debt-to-Income Ratio?
Though lenders like to see lower DTI ratios in potential borrowers, it doesn’t mean that you can’t get approved for financing. Talk to your lender and explore your options. Adjusting the loan term or down payment may help your chances.
What Debt-to-Income Ratio is Used for Auto Loans?
Auto lenders will typically look at the back-end DTI for potential buyers, which includes other active loans and debts in addition to housing expenses.