subject: What is debt to income ratio and how it is define? [print this page] What is debt to income ratio and how it is define?
If you have been declined for a car loan recently due to your credit score, there maybe more to the story than what the banks are telling you. There is a major factor of debt to income ratio banks often use to calculate your ability to repay the loan on time. The term debt to income ratio can be explained as the ratio of your daily expenses versus the amount of income you produces. In the ideal situation the lenders or the banks would like to see a debt to income ratio of 25 to 30 percent. In another word, your expenses shouldn't exceed 30% of your total income. The figured used to calculate your income is the pre-tax, or the gross income. For example if you make 40,000 dollars per year, and your monthly expenses should not exceed 1000 dollars. This will include your gas, insurance payment, vehicle expenses, and other loan payments. If your debt to income ratio exceeded the 30%, that is a warning flag for the banks to decline your loan application regardless if you have good credit or not.
To stay below the minimum requirement is simple, eliminate as many small debts are possible. If you have other sources of income that can be added to your total income it will increase your debt to income ratio. If your debt to income ratio has exceeded 30%, but you are in desperate need of a car loan, you can maximize your chances by adding down payment, or finding a suitable co-signer to increase your combined income. Another solution to this is to take on a bad credit car loan at a higher interest rate. When you are applying for a subprime car loan, the requirements are much lower compare to a standard loan. It is much easier to be approved under the bad credit car loan terms than your traditional bank loan.
So remember to keep your credit in check, and frequently follow up on your personal credit by pulling a credit report on yourself. The next time you are been declined for a car loan, make sure you find out the reason why. And if you need a vehicle bad enough, a bad credit car loan maybe just what you need temporarily. Thank you for reading this article it is brought to you by Bad Credit Car Loans Toronto, the latest online credit processing center for city of Toronto. Visit us online for more information at http://www.badcreditcarloanstoronto.ca or http://www.badcreditcarloanspickering.com
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