How to Get a Loan with a High Debt-to-Income Ratio

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When you apply for a loan, one of the factors that many lenders take into account is your debt-to-income ratio. Your debt-to-income ratio is a figure that identifies how much of your monthly income goes toward debt repayment.

The preferred debt-to-income ratio varies with each lender, but in general, individuals with higher debt-to-income ratios have lower chances of securing approval for their loans. Here are a few tips to secure a loan when your debt-to-income ratio is too high for your lender's criteria.

Lower Your Monthly Debt Payments

It may seem obvious that one of the easiest ways to increase your chances of loan approval is to lower your debt-to-income ratio. However, you need to get creative when it comes to lowering the ratio. You have numerous options to decrease the ratio, aside from paying down or paying off your debts.

One way to lower your monthly payments is to extend the term of your loan. If part of your debt consists of student loans, opt for a repayment schedule that offers a lower monthly payment. An extended repayment schedule or income-based repayment schedule are two options to decrease your student loan payments. 

If part of your debt includes credit cards. lower your monthly payment by asking your credit card issuer for a reduction in your interest rate. How quickly a lower interest rate reduces your monthly payment depends on how your credit card issuer calculates your minimum payment. 

Some card issuers set your minimum payment as a fixed percentage of your balance. In this instance, it may take a few months to achieve a lower payment. Thanks to your lower interest rate, more of your payment will go to the principal reduction, ultimately decreasing the balance (and minimum payment) of the card.

Other card issuers require a minimum payment equal to your monthly interest and a specific percentage of your outstanding balance. Lowering your interest rate will give you an immediate payment reduction.

Improve Other Areas of Your Finances

Remember, your debt-to-income ratio isn't the only component lenders use when deciding whether or not to approve your loan. They also look at your debt payment history, your total utilization of revolving credit, how often you apply for credit, and whether you have any judgments on your credit report.

Make sure that you make all your payments on time, and avoid maxing out your credit cards or credit lines. Be choosy and apply for new credit only as needed. When you do decide to take on new credit, complete all your applications close together (within 30 days if possible) to minimize the effects to your credit history.