Debt-to-income ratio (DTI)
The debt-to-income ratio (DTI) is the share of a borrower's regular income that goes to paying all their debts, used to judge whether they can afford a new loan.
In plain words
DTI answers a simple question: after paying all their loans, does the borrower still have enough to live on. A person may have a perfect payment history and still be unable to take one more loan, because most of their income already goes to existing debts.
How it is calculated
DTI = monthly debt payments / monthly income × 100%.
Example: a borrower earns 2,000 a month. They pay 400 on a car loan and 200 on a card. The new loan would add 300. Current DTI is 600 / 2,000 = 30%. With the new loan it becomes 900 / 2,000 = 45%. The lender compares the result with its own threshold and decides whether to approve, lower the amount or decline.
Why it matters to an owner
DTI protects the portfolio from borrowers who look good on paper but are already stretched. It also shapes the limit: two clients with the same score may get different amounts because their burden differs. In some countries lenders are required to check the burden before issuing a loan, and regulators watch the share of loans issued to highly indebted borrowers.
Common mistake
Counting only declared income and only debts the lender can see. Borrowers overstate income, and not all debts appear in a credit report. Another mistake is applying one threshold to everyone, ignoring that the same DTI is very different on a low and a high income. Rules on mandatory burden checks depend on the country and should be checked with a lawyer.
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