Calculating Debt-to-Income Ratio for Personal Loans

Susan GuilloryUpdated March 13, 2025

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Debt-to-income ratio (DTI) is one of the factors lenders use to determine personal loan approval. Here’s what you need to know about the debt-to-income ratio for a personal loan, how to calculate your DTI, and what lenders are looking for.

Understanding the Debt-to-Income Ratio for Personal Loans

Your debt-to-income ratio is how much monthly debt you have compared to your gross monthly income (your income before taxes). It paints a picture of your financial status and how likely you are to pay your debt, which is why lenders look at DTI when borrowers apply for a loan. In general, the lower your debt-to-income ratio is, the better your chances of getting a loan.

Debt-to-Income Ratio Calculation

Wondering how to calculate debt-to-income ratio for a personal loan? First, add up your monthly expenses. These include:

Rent or mortgage payment
Credit card bills (use the minimum required payment)
Child support/alimony
Car payment
Student loan payments

Your DTI does not include utility bills, cell phone bills, insurance bills, or internet bills.Next, add up your monthly income. This may be just your monthly salary, but it could also include tips, child support payments or alimony, rental income, or a pension.The formula for calculating DTI is as follows:DTI = (Total Monthly Debt / Gross Monthly Income) x 100

Debt-to-Income Ratio Example

Let’s say your monthly expenses add up to $2,000 per month and you have $3,500 of income per month.Divide your monthly debt by your monthly income and convert it to a percentage. For our example, that would be:DTI = (2,000 / 3,500) x 100 = 57%A DTI of 57% is considered a high DTI, which may make it harder to qualify for new loans, as lenders typically prefer a DTI below 43% for approval (ideally below 36% to qualify for the best rates).When you’re looking for a personal loan, you may come across a loan based on income or ones that require a certain debt-to-income ratio. That’s why it’s wise to calculate your debt-to-income ratio for personal loans before you apply.

Can You Get a Personal Loan With a High Debt-to-Income Ratio?

When it comes to qualifying for a personal loan, start by finding out what kind of debt-to-income ratio you need to get approved. Lenders typically prefer a DTI under 36%. If your DTI is high, it means you have a large amount of debt relative to your income, and you pose a greater risk as a borrower. What is an acceptable debt-to-income ratio for personal loans? Here’s a look at how lenders see your DTI.

Debt-to-Income Ratio	How It Rates
35% or lower	Good
36% to 49%	Okay
50% or higher	Bad

A good DTI means you can pay your current debt and have money left afterward. You should have no trouble qualifying for a personal loan with a good DTI (assuming you meet the other qualifications, too). A DTI that’s okay means you can manage your current debt, but you could run into financial problems, especially if an unexpected expense arises. You may have trouble qualifying for a loan with an okay DTI from certain lenders. A bad DTI indicates you likely can’t afford to take on any more debt, and you may have a difficult time getting approved for a loan. And while it could be possible to find a personal loan with a high debt-to-income ratio, you may have to pay a higher interest rate. Recommended: Average Personal Loan Interest Rates

What Does a High Debt-to-Income Ratio Tell Personal Loan Lenders?

Your DTI can be an indicator of how much of a risk a lender might be taking by lending you money. A high debt-to-income ratio means you have more debt relative to your income. Therefore, there could be a high risk of you not being able to pay off additional debt, like a loan.

Is It Possible to Lower Your Debt-to-Income Ratio?

Yes, it is possible to lower your debt-to-income (DTI) ratio by either reducing your debt or increasing your income. Strategies include paying off credit cards and loans, consolidating debt for lower payments, avoiding new debt, and negotiating higher income through raises or side jobs. A lower DTI improves loan approval chances.

Tips to Lower Your Debt-to-Income Ratio

The following steps could help you lower your debt-to-income ratio: Pay down your debt. Increase your monthly payments on your credit card bills rather than paying just the minimum amount. This will help you pay down your debt faster and lower your DTI ratio.Boost your income. That might mean taking on a side hustle like tutoring or doing freelance work to bring in some additional money.Make a budget and follow it. Establishing a budget can help you keep your spending on track. Make a list of your expenses and allocate the money you need to pay for them. Be financially responsible. For instance, when you’re ready to apply for a loan and you’re considering the maximum personal loan amount to take out, be sure to borrow only what you can afford to pay back.

The Takeaway

Your debt-to-income ratio provides a snapshot of your financial status and how likely you are to pay your debt. Lenders look at your DTI to get a sense of your creditworthiness and how risky it might be to lend you money, such as a personal loan. Generally, the lower your DTI, the better your chances of qualifying for a loan and getting a good interest rate. However, if your DTI is high, there are methods that may help you lower it, which could improve your finances as well as your options for borrowing money.If you’re looking for a personal loan, Lantern by SoFi can help. With just one simple application, you’ll be connected to top lenders in our network, allowing you to find a loan with rates and terms that work for you.

Frequently Asked Questions

What is an acceptable debt-to-income ratio for personal loans?

How can you calculate the debt-to-income ratio for personal loans?

What is a high debt-to-income ratio for personal loans?

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About the Author

Susan Guillory

Su Guillory is a freelance business writer and expat coach. She’s written several business books and has been published on sites including Forbes, AllBusiness, and SoFi. She writes about business and personal credit, financial strategies, loans, and credit cards.

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