1. What is Debt To Income Ratio?

The Debt To Income Ratio (DTI) is a personal finance measure that compares an individual's monthly debt payments to their monthly income. For auto loans, lenders use DTI to assess a borrower's ability to manage monthly payments.

2. How Does the Calculator Work?

The calculator uses the DTI formula:

Where:

• \( Debt\ Payments \) — Total monthly debt obligations ($)
• \( Income \) — Gross monthly income ($)

Explanation: The ratio shows what percentage of your monthly income goes toward debt payments.

3. Importance of DTI for Auto Loans

Details: Most auto lenders prefer a DTI below 36%, with no more than 28% of that debt going toward your auto loan payment. A lower DTI increases your chances of loan approval and better interest rates.

4. Using the Calculator

Tips: Enter your total monthly debt payments (including credit cards, student loans, housing payments, etc.) and your gross monthly income (before taxes). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI for auto loan approval?
A: Generally, lenders prefer DTI below 36%, with some lenders accepting up to 50% for borrowers with excellent credit.

Q2: Does this calculator include the new auto loan payment?
A: No, this calculates your current DTI. To estimate DTI with a new auto loan, add the estimated payment to your debt payments.

Q3: Should I use gross or net income?
A: Lenders typically use gross income (before taxes) for DTI calculations.

Q4: What debts are included in DTI?
A: Include all recurring monthly debts: credit cards, student loans, personal loans, housing payments, alimony, etc.

Q5: How can I improve my DTI?
A: Pay down existing debts, increase your income, or consider a less expensive vehicle to lower your DTI.