Debt-to-income ratio (DTI), explained
Your debt-to-income ratio shows lenders what percentage of your monthly income goes toward debt payments including your proposed car loan.
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.
Residual value, explained
Residual value is what the leasing company predicts your car will be worth when your lease ends.
Money factor, explained
Money factor is the lease equivalent of an interest rate, expressed as a tiny decimal that looks confusing but isn't.
GAP insurance, explained
GAP insurance covers the difference between what you owe and what your insurer pays if your car is totaled.