Getting a car loan doesn't have to be a nightmare, even with bad credit.

DTI and PTI Ratios Explained for Car Loan Shoppers

Posted June 21, 2013 by

If you’re suffering from bad credit and that status is standing in the way of your getting the new car that you need, then probably the last thing you want to do is get fully immersed in the nomenclature that has consigned you to riding the bus.  It’s understandable.  Still, if you ever want to see yourself off the 45D (Downtown) bus and behind the wheel of a new automobile, then you need to bone up on the facts that are standing in the way of your new car loan.

Two of the acronyms that are likely to cause stomach acid and acrimony when shopping around for a car loan are DTI and PTI.  The former stands for “Debt to Income” ratio, while the later means “Payment to Income” ratio, and both are critically important calculations when it comes to securing a car loan.

Simply stated, DTI calculations require you to add up all your outstanding debts, such as your rent, utility bills, minimum credit card payments and all other payments that are sent out on a monthly basis such as student loans or child support payments.  This outflow of cash is then divided by your incoming gross cash flow.

Typically speaking, under the rubric of a PTI ratio, auto lenders are looking for a combined car loan and insurance payment that does not exceed 15% of your monthly income.  As such, should 15% of your monthly income be $450, you would need to calculate a probable insurance premium of $100, which results in being able to qualify for a car loan of only $350 per month.

Bad credit lenders are looking to see that you will be able to sustain the monthly responsibilities associated with your new vehicle purchase.  Whether you are choosing to buy or lease, getting a firm handle on your cash flow situation is a necessary step before entering the auto market.

It is recommended that consumers do their own math prior to even selecting their ideal make and model.  As they say, “if wishes were fishes, we would all die of mercury poisoning,” but understanding the numbers behind the decision will save you time, effort, and disappointment.  More to the point, an unfavorable report as a result of the inquiry will only serve to further lower your credit score in the eyes of future lenders.

You can take solace in the fact that the 45D (Downtown) bus is only a temporary situation, and you can shorten that timeframe by understanding how car loan officers make their determinations.  As you can see, it is all a numbers game and it behooves the careful shopper to fully understand the calculus employed by lenders to determine your driving fate.

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