Guide
Debt-to-income ratio: what lenders measure, and how much new loan fits
When you apply for a loan, one of the first things a lender asks is how much of your income already goes on debt. The answer, the debt-to-income ratio, is a simple fraction: your monthly debt payments divided by your gross monthly income. A lower ratio means more of your income is free to cover a new payment. In India the same idea appears as FOIR, the fixed obligation to income ratio, and in the United States as DTI. This page works it out and then reverses it to estimate how big a loan you could carry.
What counts as debt
Include payments you must make every month on borrowed money: your rent or home loan instalment, car and two-wheeler loans, education loans, the minimum due on credit cards and other loan instalments. Leave out groceries, utilities, insurance premiums, tax and subscriptions, which are living costs, not debts. The housing line is kept apart because lenders look at it separately in the front-end ratio.
Two ratios
The back-end ratio is all debt payments, including any new loan you are thinking of, divided by income. The front-end ratio takes only housing costs, so it is lower; the switch tells the page whether the new loan counts as housing. A traditional guideline is the 28/36 rule: housing at most 28 percent of gross income and total debt at most 36 percent. Lenders set their own limits and often accept more for strong applicants.
A worked example
The sample household earns 1,20,000 a month and pays 28,000 for housing, 9,000 for a car loan, 3,000 for card minimums and 2,000 for other loans. Today’s ratio is 35.0%. A new housing loan with a payment of 15,000 would raise the back-end ratio to 47.5% and the front-end ratio to 35.8%, a total of 57,000 a month, which is above the 40% limit entered, and the page warns. Under that limit there is room for only 6,000 a month, which at 9% over 20 years supports a loan of about 6,66,870. A US-style example with an income of 7,000 and a 36% limit shows 32.4% today and 250 a month of room, about 27,786.
From room to loan size
The room is the limit times income, minus the debts you already have. Dividing that monthly amount by the loan formula’s payment factor gives the amount that payment can repay at the interest rate and term you enter. It tells you what size of loan would still keep you inside your limit, and how sharply it falls if existing debts are higher or the rate rises. It is an upper bound, not a recommendation to borrow that much.
Edge cases
A zero rate is allowed, in which case the loan is the room times the number of months. If existing debt already exceeds the limit, the room is zero and so is the loan. Income must be above zero. The term can be up to 50 years. A new payment of zero lets you test today’s position only.
Limits
Lenders also consider credit history, job stability, the size of the down payment and their own rules, so a ratio inside a limit does not guarantee approval. The page does not know your lender’s policy on what to include, for instance whether they count part of your rent. Use it as a planning tool before you apply.
Related tools
- Debt Payoff Calculator plans how to reduce the monthly debt payments in the numerator.
- Credit Utilization Calculator measures the other side of card use.
- Mortgage Calculator turns a loan size into a payment schedule.
- Loan Calculator works the instalment for any amount, rate and term.
Checked against the current version of the Debt-to-Income Calculator on .