Bad credit history
What Does Debt-to-Income Ratio Mean?
If you’re applying for a loan, you’ve probably heard the term “debt-to-income ratio” (DTI).
But what does it actually mean, and why is it important—especially if you have bad credit?
At Zoom Car Loans, we help people with bad credit get the financing they need, and understanding DTI is a key part of the loan approval process.
What is Debt-to-Income Ratio?
Your debt-to-income ratio is a simple way of comparing how much debt you have to how much money you make.
It’s calculated as a percentage and helps lenders determine whether you can afford to take on more debt.
The formula is:
DTI = (Total Monthly Debt Payments ÷ Gross Monthly Income) × 100
For example, if your total monthly debt payments (including car loans, credit cards, and personal loans) are $2,000 and your gross monthly income is $5,000, your DTI would be:
(2000 ÷ 5000) × 100 = 40%
A lower DTI means you have more disposable income, making you less risky to lenders. A higher DTI suggests you may struggle to take on additional debt.
Why Does DTI Matter for Bad Credit Loans?
When you have bad credit, lenders are already cautious about approving your loan. Your DTI gives them another way to assess if you can realistically afford to repay the loan.
Here’s how different DTIs can impact your loan application:
- Below 36%: This is a healthy DTI and means you’re in a strong position to take on more debt.
- 36% – 50%: Lenders may still approve your loan, but they’ll look more closely at your financial situation.
- Above 50%: This is considered high, and many lenders might be hesitant to approve your loan unless you have a stable income or a strong repayment plan.
How Can You Improve Your DTI?
If your DTI is high, don’t worry—there are ways to improve it and increase your chances of getting a loan:
- Pay Down Existing Debt – Try to reduce outstanding balances on credit cards and loans.
- Increase Your Income – If possible, take on additional work or look for ways to boost your earnings.
- Avoid Taking on New Debt – Hold off on getting new credit cards or loans until you’ve lowered your DTI.
- Refinance or Consolidate Debt – You might be able to combine multiple debts into a single, lower-interest loan.
Getting a Loan with a High DTI
At Zoom Car Loans, we understand that life happens—sometimes debt builds up, and income may not keep pace.
Even if your DTI is high, we work with lenders who specialise in bad credit loans. We focus on your overall financial picture, not just your credit score or DTI.
If you’re struggling with bad credit but need a car loan, we can help!
Contact us today to explore your options and find a loan that works for your situation.
What Does Debt-to-Income Ratio Mean?
Your debt-to-income ratio is an important factor in loan approvals, but it’s not the only one. If you have bad credit and need a loan, don’t let your DTI hold you back.
At Zoom Car Loans, we’re here to help you find solutions that fit your needs.
