📉 What is Debt-to-Income (DTI) Ratio and Why Does It Matter?
Your debt-to-income (DTI) ratio is one of the key factors banks use to decide whether to approve your car loan. Even if you earn a high salary, having too much existing debt can lead to rejection.
DTI Ratio = Total Monthly Debt Repayments ÷ Monthly Income × 100
A higher DTI means more financial risk, making lenders less likely to approve your loan.
🔍 What DTI Ratio Do You Need to Get a Car Loan?
While every lender has different policies, here’s a general guide to how your DTI ratio impacts approval chances:
| DTI Ratio | Approval Chances | Lender’s View |
|---|---|---|
| ✅ Below 30% | Very High | Excellent financial health—most lenders approve. |
| ⚠️ 30%-40% | Possible | Some banks may approve, but extra checks may apply. |
| ❌ 40%-50% | Low | Considered high risk—most banks will decline. |
| 🚨 Above 50% | Very Low | High chance of rejection—lenders see you as financially stretched. |
If your DTI is above 40%, traditional lenders may decline your car loan—but alternative lenders and brokers may still find a solution.
🚨 Why Do Banks Decline Car Loans Based on High DTI?
Even if you can afford repayments, banks may reject your car loan if your DTI is too high because:
🔸 They assume you’re financially stretched—even if you’re managing well.
🔸 They see you as a high-risk borrower—more debt means higher chances of missed payments.
🔸 Responsible lending laws prevent them from approving loans that may cause hardship.
🔸 They compare your debts to national affordability benchmarks.
Some lenders strictly follow DTI limits, while others take a more flexible approach—which is why finding the right lender is key.
✅ How to Improve Your DTI Ratio Before Applying for a Car Loan
If your DTI is too high, here are some ways to reduce it and improve approval chances:
1️⃣ Pay Off Existing Debts – Reduce credit card balances or personal loans before applying.
2️⃣ Consolidate Debts – Combining loans into one repayment may lower your monthly obligations.
3️⃣ Increase Your Income – A higher salary naturally lowers your DTI ratio.
4️⃣ Apply for a Smaller Loan – A lower loan amount means lower repayments, improving your ratio.
5️⃣ Use a Finance Broker – A broker can find a lender with more flexible DTI limits.
🚀 Can You Get a Car Loan If Your DTI Ratio Is High?
Yes! If your bank declines your application due to DTI, there are alternative lenders who:
✅ Consider higher DTI ratios if other factors (e.g., job stability) are strong.
✅ Accept bad credit or high-debt applicants at slightly higher interest rates.
✅ Offer secured car loans, where the vehicle is used as collateral.
Instead of guessing which lender will approve you, working with a finance broker can help you find a lender that fits your financial situation.
🚀 Why a Finance Broker Can Help If Your DTI Ratio is High
A finance broker has access to lenders who understand that debt doesn’t always mean financial struggle. They can:
✅ Find lenders that accept higher DTI ratios than banks.
✅ Help structure your loan to improve approval chances.
✅ Save you from applying multiple times, which can hurt your credit score.
If your car loan was rejected due to a high DTI ratio, don’t give up! 🚗💨 A finance broker can help you find a lender who will approve your loan despite existing debts.
DISCLAIMER
The information provided on this website is general in nature only and has been prepared without considering your financial needs, circumstances and objectives and should NOT be construed as financial, taxation or legal advice. For more information, get in touch with our experienced partner brokers today.
