Can you get a car loan with a high debt-to-income ratio?
Most lenders consider anything below 36% to be a good debt-to-income ratio, but you could have wiggle room. DTI thresholds vary by type of loan and by the lender itself. Still, you'll find some general guidelines below. DTI of 0% to 35%: Your debt looks manageable.
| Debt-to-income ratio | Rating |
|---|---|
| 0% to 36% | Ideal |
| 37% to 42% | Acceptable |
| 43% to 45% | Qualification limits for many lenders |
| 50% and above | Poor |
The fact that you have a high debt-to-income ratio doesn't mean you are never going to qualify for a debt consolidation loan. However, it does mean that you're going to have work harder to find a lender willing to approve a loan and it's likely to include a less-than-desirable interest rate.
Most lenders say a DTI of 36% is acceptable, but they want to lend you money, so they're willing to cut some slack. Many financial advisors say a DTI higher than 35% means you have too much debt.
Key takeaways
Debt-to-income ratio is your monthly debt obligations compared to your gross monthly income (before taxes), expressed as a percentage. A good debt-to-income ratio is less than or equal to 36%. Any debt-to-income ratio above 43% is considered to be too much debt.
35% or less: Looking Good - Relative to your income, your debt is at a manageable level. You most likely have money left over for saving or spending after you've paid your bills. Lenders generally view a lower DTI as favorable.
There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
FHA loans have more lenient qualification requirements than other loans. Borrowers must have a minimum credit score of 580 to qualify for the loan. The maximum DTI for FHA loans is 57%. However, a lender can set their own requirement.
Debt-to-income ratio: 43 percent
Generally, though, the DTI FHA loan requirements mean that on a monthly basis, your combined debt payments, including your mortgage, shouldn't exceed 43 percent; no more than 31 percent of your income should go toward your mortgage payments.
Debt-to-Income Ratio Requirements
This is also known as your DTI ratio. FHA guidelines call for borrowers to have a DTI ratio of 43% or less. They also indicate that a mortgage payment should not exceed 31% of a person's gross effective income.
Is $500 a month too much for a car?
How much should you spend on a car? Whether you're taking out an auto loan or a personal loan to pay for your car, it's a good idea to limit your car payments to between 10% and 15% of your take-home pay. If you take home $4,000 per month, you'd want your car payment to be no more than $400 to $600.
Financial experts recommend that your monthly payment should be around 10% to 15% of your monthly take-home pay. Additionally, your total monthly car expenses should be no more than 20% of your monthly income, and this includes your car payment, insurance, maintenance and gas.
A good interest rate for a car loan is typically below 5.18% for new cars and 6.79% for used vehicles. However, the best rate is unique to the borrower so it's best to look at the average interest rates for your credit score category to know if you're getting a good deal.
Broadly speaking, there are two ways to improve your DTI ratio: Reduce your monthly debt payments, and increase your income.
The Federal Reserve tracks the nation's household debt payments as a percentage of disposable income. The most recent debt payment-to-income ratio, from the third quarter of 2023, is 9.8%. That means the average American spends nearly 10% of their monthly income on debt payments.
Your debt-to-income (DTI) ratio is a key factor in getting approved for a mortgage. The lower the DTI for a mortgage the better. Most lenders see DTI ratios of 36 percent or less as ideal.
Lenders, including anyone who might give you a mortgage or an auto loan, use DTI as a measure of creditworthiness. DTI is one factor that can help lenders decide whether you can repay the money you have borrowed or take on more debt. A good debt-to-income ratio is below 43%, and many lenders prefer 36% or below.
Standards and guidelines vary, most lenders like to see a DTI below 35─36% but some mortgage lenders allow up to 43─45% DTI, with some FHA-insured loans allowing a 50% DTI.
By calculating the ratio between your income and your debts, you get your “debt ratio.” This is something the banks are very interested in. A debt ratio below 30% is excellent. Above 40% is critical. Lenders could deny you a loan.
The score range for the Auto Score is 250-900 (instead of the traditional 300-850). FICO promotes that Auto Score will help dealerships and lending institutions in five distinct ways: Increase regulatory compliance.
What is the minimum FICO score to buy a car?
Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.
Rates and terms are subject to change without notice. Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
You can lower your debt-to-income ratio by reducing your monthly recurring debt or increasing your gross monthly income.
FHA does not require that collection accounts be paid off as a condition of mortgage approval. However, court-ordered judgments must be paid off before the mortgage loan is eligible for FHA insurance endorsem*nt.
Conventional loans: Typically require a DTI ratio of 43% to 45%. Lenders might allow higher ratios, up to 50% for applicants with good credit history or substantial cash reserves.
