Apart from the CIBIL score, there are many other factors on the basis of which the banks decide whether a loan should be given to a person or not. One of these is the DTI ratio. Know what it is, how it affects your loan and how it can be improved.

Before giving a loan, the banks first look at your CIBIL score. The CIBIL score tells how the borrower's previous loan repayment history has been. But apart from this, there are many other factors on the basis of which the banks decide whether a loan should be given to a person or not. One of these is the DTI ratio. DTI means Debt to Income. If this goes wrong, the banks can also refuse to give you a loan. Understand what it is and how it affects you.

DTI tells the customer's ability to repay the loan

Debt-to-income ratio is a measure of the customer's ability to repay the loan. Through this, the customer's loan repayment status is assessed. DTI ratio is calculated on a monthly basis. For this, the sum of all the loans of the person like home loan, car loan, credit card payment or any other type of loan which is already running is taken out and divided by the monthly income. DTI tells whether the financial condition of the loan requester is capable of repaying the loan or not. On the basis of this, banks decide whether the loan should be given to the customer or not or how much amount can be given as a loan.

Understand the calculation with an example

Suppose you earn 80 thousand rupees every month. You already have one home loan and one car loan running. Every month your home loan installment is 28 thousand and car loan installment is 4 thousand rupees. That is, a total of 32 thousand rupees are deducted from your income every month. In this way, your debt-income ratio is 40%, which is high and it can affect your loan. Your DTI ratio should be less than 36%. The lower the DTI ratio, the better the balance between income and debt. The higher it is, the more problems you will face in getting a loan.

How DTI affects the loan

When a customer applies for a loan, the bank looks at his salary and credit score, after which it checks the DTI ratio. If your DTI ratio is high and the bank feels that you are not in a position to repay the loan, then despite good income and good credit score, the bank can reject your application due to having more liabilities or can object to the amount of loan you want.

How to improve this ratio

The way to improve the DTI ratio is to improve your income. If you are in the private sector, you can improve your package by changing jobs or you can increase your income by doing a part-time job. Apart from this, you can also improve your income by doing a separate business. If it is difficult to increase income, then first pay your liabilities. After this your DTI can improve.