Debt-to-income ratio

A measure of financial health, like the pulse of one's economic well-being, that compares the total amount of debt a person has to their income, helping lenders assess the borrower's ability to repay loans and manage their finances.

Example

Suppose a person has a monthly income of $4,000 and total monthly debt payments of $1,600 (including mortgage, car loan, and credit card payments). Their debt-to-income ratio would be calculated as $1,600 / $4,000 = 0.4 or 40%. A lower debt-to-income ratio typically indicates a more favorable financial situation and may improve the chances of obtaining credit or favorable loan terms.