Debt-to-income ratio (DTI), explained

What it means

Debt-to-income ratio (DTI) is your total monthly debt payments divided by your gross monthly income. If you earn $6,000 per month and pay $1,200 for a mortgage, $300 for student loans, $150 for credit cards, and want a $450 car payment, your DTI would be 35% ($2,100 divided by $6,000). Lenders use DTI to gauge whether you can actually afford the loan. Most auto lenders want to see DTI below 45% to 50% including the new car payment. Some credit unions and prime lenders prefer 40% or lower.

Why it matters

A high DTI is the second most common reason for loan denial after bad credit. Even if your credit score is strong, a DTI above 50% signals you're overextended. Lenders will either deny you, reduce the loan amount, or offer worse rates. If you're refinancing, DTI matters just as much as when you bought the car. A DTI above 43% also disqualifies you from most mortgages, so taking on a big car payment can lock you out of homebuying.

What to do

Before you apply for financing or a refi, calculate your DTI honestly. If it's above 45%, either increase your down payment to lower the monthly payment or pay down other debts first. Run your current loan through our Refinance Verdict to see if a lower rate would shrink the monthly payment enough to move your DTI. If you're shopping new, the Lease vs Buy Verdict shows monthly outflows side by side.