What is Debt-to-Income Ratio?

A good debt-to-income ratio is anything below 35% - as the lower the percentage, the better.

This is because your lenders will use DTI to understand your financial situation. Then, they can evaluate your loan application and make a decision about the loan terms or interest rates. The lower your DTI, the greater your chance of getting

a good deal.

For example:

• A low DTI is usually below 35% and means that you have a relatively small amount of debt compared to your income. This shows lenders that you’re a low-risk borrower with a sufficient income who can repay them – and could result in lower interest rates and better loan terms.
  
  
• Anything between 36% to 49% is considered a moderate DTI and suggests that you’ll probably be able to manage multiple repayments.
  
  
• A high DTI above 50% may seem alarming for lenders as you might not be able to repay any additional expenses. This could potentially impact your loan approval and terms.

Lenders can check your DTI by reviewing your payslips, banks statements and other documents.

Here are some common ways to bring your debt-to-income ratio down:

• Prioritise paying off your existing debts. Look for opportunities to pay down your high interest debts or use the debt snowball method to settle debts with the smallest balances.
  
  
• Cut your expenses. Be mindful of how you spend your money, avoid impulse purchases and shop around for offers.
  
  
• Avoid taking on new debt. Don’t apply for new credit or loans. Try to stick to your budget and build an emergency fund for unexpected expenses.