The debt to income (DTI) ratio refers to the percentage of your total monthly income that’s dedicated to your regular monthly bills. J.J. Best Banc & Company is going to review your debt and income calculations to determine your ratio when reviewing your classic auto loan application. In order to get an auto loan when having bad credit, you typically need to have a DTI ratio that’s less than 45% to 50%.
Why Is the Debt to Income Ratio Important?
Before we get into how to improve your DTI ratio, you should know why it’s important. JJ Best and other lenders need to ensure you can comfortably afford a car loan, and set limits on how much debt you’re allowed. So understanding these calculations are important.
We want to see you successfully complete auto financing and calculating your DTI ratio helps us feel confident in your ability to pay it off. Plus, it helps you determine your budget, so you should calculate it at home beforehand to be better prepared.
How much debt is allowed varies by lender. However, most bad credit lenders generally cap the maximum allowed DTI ratio at 45% to 50%. At JJ Best the lower the percentage, the better off you are in getting an approved classic, new, or used auto loan.
How Can I Improve My DTI Ratio?
If you now understand what a DTI ratio is, how do you calculate and improve it? Determining your DTI ratio is easy. All you have to do is add up all your regular monthly bills plus an estimated car and insurance payment. “For example, if you make $1,900 a month before taxes, and your monthly bills plus an estimated car and insurance payment all add up to $750, your DTI ratio would be 40%”, says Joe, Loan Officer.
If your DTI percentage is closer to or above 50%, the best way to improve your DTI ratio is to pay down as much debt as you can to get it below 50%. Amounts owed makes up 30% of your FICO credit score and although you may be paying your bills on time each month, the debt remaining could be bringing your credit score down and affecting your DTI ratio.
“At J.J. Best Banc, a common issue applicants are faced with is credit card debt. It’s easy to fall into, and it can greatly affect your DTI ratio and credit score. If you have high credit card balances, you should work to pay off these or reduce the debt owed as best you can to get an auto loan”, says Chris, Loan Officer at J.J. Best Banc. “The less you owe, the lower your DTI ratio is going to be, and the better your chances are of getting approved for a bad credit auto loan”.
Ready to Apply for a Car Loan?—Apply online at JJBEST.com or call your personal Loan Officer at 800-USA-1965. We look forward to servicing you.