Loans are essential financial vehicles to help you get things like a house or car. However, getting approved for a loan isn’t always easy if you have bad credit or a high debt-to-income ratio. In fact, even with good credit a large amount of debt can hinder your chances of getting a loan. That said, there’s no need to panic because we’re here to help.
Read on to learn about how to secure a loan with a high debt-to-income ratio.
Debt-to-income ratios are used to determine how much debt someone has, usually every month. Typically, it’s based on your total monthly payments for debt and your gross income each month. The combination of these numbers forms the ratio.
To calculate your debt-to-income ratio the process is simple. Start by adding up how much you pay each month in debt. This includes all debt like credit cards, mortgages, and student loans.
From there, add up your monthly income. The last step is to divide your debt payments by your monthly income. When lenders consider your debt-to-income ratio, this is the number they’ll use.
A good debt-to-income ratio is less than 46%. However, for larger loans, your approval chances are best at less than 34%. The lower your debt-to-income ratio the better when it comes to getting a loan.
Yes, you can get a loan with a high debt-to-income ratio. However, it’s not easy if you don’t have much income left over. To offset this problem you’ll have to prove that you have the necessary assets to pay back the loan.
Next, we will show you how to prepare for the application process.
When you’re applying for a loan with a high debt-to-income ratio, it’s important to prepare for the loan process. Unfortunately, it won’t be as simple as applying for a loan with an average or below-average debt-to-income ratio. Thankfully, we have some solid tips for you below.
The best way to prepare is to know what your debt-to-income ratio is before you apply. Divide your debt payments by your total monthly income for the ratio. Then, determine if it’s enough to secure the loan you’re looking for. For example, if you only have $300 left and the loan payment will be $1,000, you won’t have enough income to get approved for the loan.
Another way to get ahead of any problems is to run a background check on yourself. Running a background check will reveal any further problems like liens, defaults, lawsuits, or bankruptcies. These are all issues that will hinder your chances of getting approved.
When checking this information you also want it to be accurate and up-to-date. Therefore, we always recommend using the best background check tool in the game: Information.com.
Using Information’s background check tool is as simple as heading over to the website and providing your name, address, city, and state. From there, let Information.com do the work and reveal your records in the full report.
Several factors can boost your chances of getting a loan. We’ll take you through some of our best tips to boost your approval ratings below.
- Increase your income to lower your debt-to-income ratio
- Get a secured loan, which allows you to offer collateral
- Have someone cosign on the loan for you
- Refinance your debt when possible
- Pay down your debts faster
- Get a cheaper apartment or living situation
These are just a few tips to help you improve your chances.
Preparation is key when applying for a loan with a high debt-to-income ratio, so make sure you’re two steps ahead of the lender for the best outcome.
Having a high debt-to-income ratio doesn’t make it impossible to get a loan. However, you’ll have to prove that you can afford to pay back the loan in other ways.
We always recommend checking your background as well before applying to see if you have any liens or bankruptcies on your record. These records can further impair your ability to get a loan with a high debt-to-income ratio.