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

A high debt-to-income ratio (DTI) isn't always a barrier to getting a loan. It's just one factor that lenders look at when deciding whether to work with you. If you can demonstrate that you have stable employment, a good credit history, or cash reserves, you may still be able to get approved even if your DTI is on the high side.

To give yourself the best chance, it helps to understand a bit more about DTI and how it fits into the bigger picture that lenders look at when they evaluate potential borrowers. This could also help you identify which lenders are more likely to approve you and how to make yourself a more appealing candidate.

Debt-to-Income Ratio (DTI): The Basics

Understanding exactly what DTI is and why it matters could help you determine what you need to do with your financial situation to increase your chances of getting approved for a loan.

What is DTI and why does it matter for loan approval?

DTI is debt-to-income ratio, or the amount of your income that goes toward debt. It’s an important metric that shows lenders whether you could afford to take on a new loan payment, given your other financial obligations. 

A high DTI could mean you might not have enough money coming in to easily cover your expenses and pay your bills. You’re living a little too close to the edge for their comfort. On the flip side, a low DTI means you are more likely to be comfortable paying your bills and taking on a new loan, if needed. 

There are two types of DTI: front-end and back-end. 

Back-end DTI looks at all of your monthly debts, including your housing expense, compared to your income. 

Front-end DTI looks at just your housing expense compared to your income. 

Lenders set their own limits for what's considered an acceptable DTI. Some home loans and personal loans allow much higher limits than you might expect. The following table breaks down how most lenders view DTI:

It's worth noting that, while DTI is separate from your credit history, the two are often linked. When your DTI is high, there's a greater chance you could fall behind on your payments, which could lead to late fees and credit score damage.

How to calculate your DTI

To calculate your DTI, add up all your monthly debts plus your housing expense. Divide the total by your gross income, or the amount you make before taxes. Include income you make in your full-time or even your side business, if you have one.

Expenses you should factor into your DTI calculation include loan payments and other monthly obligations include:

• Alimony payments you have to make

• Child support payments you have to make

• Rent payment

• Mortgage payment, plus property taxes, homeowners insurance, and homeowners association dues if they aren’t already included in your mortgage payment

• Auto loan payments

• Personal loan payments

• Student loan payments

Let’s say you pay $1,200 in rent, $250 a month in auto loan payments, and $550 for your other loans. Your monthly income before taxes is $4,500. In this case, your DTI is 44%. 

Ideal DTI ratios for different loan types

Lenders tend to have maximum DTI limits they’ll allow when an applicant wants to take out a loan. The maximum amount will depend on the lender and the type of loan you want. 

For most mortgage lenders in the U.S., the maximum DTI ranges from 36% to 50%. The limit depends on what type of loan you’re applying for, your credit score, and how much of a down payment you’re making. 

When it comes to personal loans, lenders for unsecured loans typically allow a maximum DTI between 35% and 40%. Some may push this higher if you have good credit. Credit card issuers don’t necessarily consider your DTI—some do, and many don’t. Auto lenders or secured loans may have higher DTI limits since you need to provide collateral, reducing risk for the lender. 

Challenges of High DTI When Applying for Loans

What lenders consider a high DTI for one customer might not be excessive for another customer. However, if you apply for a loan and the lender believes you have a high DTI, you may face certain challenges like having your loan application denied or being offered higher interest rates. 

Why lenders hesitate with high DTI borrowers

Lenders want to reduce their risk as much as possible or believe that they’ll be able to get back the money they lend out. That’s why lenders look at various financial factors to see whether a borrower has the ability to repay their loan.

A high DTI could mean the applicant may be stretched too thin financially. Think about it: If someone needs to pay back a bunch of loans, a lender may believe that this person may struggle to repay an additional loan. 

DTI isn’t the only factor lenders consider. Your loan application may be approved even with a high DTI if your credit is excellent, your income is stable, and you have some savings. 

Impact of high DTI on loan terms and interest rates

When you have a high DTI, you may be offered loans with higher interest rates. You may also not have as many choices when it comes to your loan repayment terms. 

Common rejection reasons for high DTI borrowers

Aside from your DTI being considered too high, some reasons your loan application may be rejected include:

• Your credit score was too low.

• You don't make a high enough income.

• You wanted to borrow too much money.

• The loan purpose didn’t match the loan type.

Loan Types for High DTI Borrowers

It’s still possible to take out a loan even if you have a high DTI. 

Personal loans for high DTI borrowers

Some lenders specifically work with borrowers with various financial profiles, even ones with high DTIs. Shopping around for a loan is the best way to find companies that are willing to work with you. 

Many lenders let you get prequalified with a soft credit check that doesn't hurt your credit score. This gives you an idea of how much you'd be able to borrow and what kind of loan terms to expect. Compare options from three to five lenders.

Personal loans with terms of five years or longer could mean lower monthly payments and may be easier for you to obtain. The longer you take to repay a loan, the more interest you’ll pay. 

Debt consolidation loans: secured vs. unsecured

Debt consolidation could be a challenge if you have a high DTI. That’s because lenders want to be sure you’re not using their loan and taking on additional debt, which could make you seem like a risky borrower. 

If you have a high DTI, the debt consolidation loans with the most favorable rates and terms are often secured loans. A secured loan requires collateral (something that serves as a guarantee that you’ll repay the loan). Collateral helps lower the risk for the lender. In turn, they may offer lower interest rates. Secured loans may have a longer repayment term compared to unsecured loans. A longer term could help you get a more affordable monthly payment. 

Home equity loans (HEL) and home equity lines of credit (HELOC)

Home equity loans and HELOCs are secured loans. The home you borrow against is the collateral. Lenders are generally more willing to offer lower interest rates because of their lowered risk. Their longer repayment schedules help lower your payment as well. 

Compensating Factors That Can Offset High DTI

Having one or more of the following things working in your favor could increase your approval odds even if you have a high DTI.

Excellent credit score

A high credit score tells lenders that you've historically paid your bills on time and haven't allowed your borrowing to become unmanageable. This can give them reassurance that you won't be getting in over your head with a new loan.

Stable employment history

A steady income is important to be able to afford any type of loan. If you can demonstrate that you have a stable job, lenders may be less worried about how you'll come up with the cash required for the monthly payments.

Cash reserves

Having cash on hand can help you keep up with your payments even if you experience financial emergencies, like an unplanned expense or a temporary job loss. You could also use extra cash toward a down payment, as discussed below.

Large down payment

When you make a large down payment on a mortgage or auto loan, you're borrowing less from the lender. It’s what they call “having skin in the game” and it means you have more to lose if things don’t work out. Statistically, the more skin in the game, the less likely you may be to walk away from a debt. If you buy a $30,000 car with a $15,000 down payment, for example, you’ll want to figure out a way to avoid defaulting on the loan and losing your investment.

Where to Find Loans if You Have a High DTI

Several places you could find loans even if you have a high DTI include online lenders, your local credit union, and alternative lenders. 

Credit unions and community banks

Local community banks and credit unions may be more willing to work with you if you have a higher DTI. These types of financial institutions are there to serve the community, and that includes those who may not qualify for loans through traditional banks or lenders. 

That’s not to say you won’t have to meet minimum requirements. Rather, you may be able to speak to a staff member who could work with you to see what you may be able to qualify for.

Online lenders specializing in high DTI borrowers

Some online lenders may be more willing to work with borrowers who have high DTIs. When doing your research, check to see if the lender has posted any minimum borrowing requirements. Get rate quotes from lenders who do a soft credit check that won’t affect your credit score.

Alternative lenders and peer-to-peer (P2P) lending platforms

Peer-to-peer lending platforms are where you can find individuals who lend money to others. You get to connect to people who may be willing to lend you money, and interest rate and repayment terms could vary. Alternative solutions like loans through private or microlenders could also be possible solutions. 

Strategies to Improve Your Chances of Securing a Loan

Working on your financial situation could help improve your chances of getting a loan. Consider some or all of the following strategies. 

Reduce existing debt

Lowering the amount you owe is one of the most common ways to lower DTI. When paying down debt, try your best not to take on any new loans for a while. Otherwise, your DTI may not change much.

You could try the debt avalanche or the debt snowball method. Both require you to make the minimum payment on all your debts each month. In the snowball method, you put any extra cash toward the debt with the smallest balance first. In the avalanche method, the extra cash goes toward the debt with the highest interest rate first. The snowball method could be a better choice if you're trying to quickly knock out the number of monthly payments you make.

However, you should note that paying down credit card debt may not drastically lower DTI unless you're paying off the balances. That's because DTI only includes your minimum credit card payments, not your entire balance. If you're trying to make a quick impact on your DTI, focusing on debts with higher minimum payments first could help.

Increase your income

Even with the same number of debt payments, increasing your income will lower your DTI. When going this route, consider options like taking on more hours at work, negotiating for a higher salary, or starting a side business.

Document all your income from your various income sources carefully and present this to the lender with your loan application. This can show them that you're financially stable and that your income isn't just limited to your day job.

Consolidate debts to lower your DTI

You may be able to lower your DTI if consolidating your debt means your monthly payments go down. Qualifying for a lower interest rate, for example, or extending your repayment terms could lower the amount you pay each month. 

Find a co-signer

A co-signer who has good credit could convince lenders to offer you a loan. Make sure you both understand what happens if you’re unable to pay back your loan. 

Time your application carefully

It can take up to a month for your credit score to update after paying off a debt. So it's often wise to wait to apply until your credit reports reflect this. This way, lenders will see the most accurate information.

Tips to Get Approved for a Loan with a High DTI

Your DTI isn’t the only factor lenders look for when you apply for a loan. Consider the following best practices to help increase your chances of approval. 

Improve your credit score before applying

Improving your credit score could show lenders you pay your loans on time. Some ways to boost your credit score include:

• Check your credit report for errors and dispute them

• Make consistent on-time payments

• Limit how much you spend on your credit cards

Be prepared to explain your DTI and financial situation

Some lenders may allow you to offer an explanation about your financial situation to show you’re a responsible borrower. For example, you may be able to explain why you have a high DTI and show you have the means to take on a new loan.

Compare multiple lenders to find the best terms

Shopping around with multiple lenders will help you learn what you may qualify for. That could make it easier to choose the loan with the best terms based on your financial profile. Getting prequalified—where lenders conduct a soft credit check—means your credit score won’t be affected. 

Consider providing collateral for better approval odds

Putting up collateral like your car or another type of asset could make it easier to qualify for a loan. The risk is that if for some reason you can’t fully repay the loan, the lender could sell the collateral to recover the money you owe.  

Alternative Solutions if You Can't Secure a Loan

If you're not able to secure a loan, you may be able to get your needs met another way, such as by saving up for a purchase over time or making a plan to pay down your debts. If that's not possible, you can try one of the following options.

Debt settlement programs

If your debts have become unaffordable, look into debt settlement. This means you (or a company you work with) negotiate with your creditors to accept less than the full amount you owe and forgive the rest. This could help you become debt-free more quickly.

A debt settlement program may be a good option if you have a substantial amount of unsecured debt, are struggling or already behind on your payments, and have a financial hardship that makes it hard or impossible for you to afford your debts. If you're interested in learning more, check out our frequently asked questions about debt relief.

Credit counseling and debt management plans

Work with a credit counselor aligned with the National Foundation for Credit Counseling or the Financial Counseling Association of America. Your counselor could set up a debt management plan (DMP). This is a structured repayment plan that offers simplified monthly payments, though they may be high for some people.

Your counselor distributes your payment among your creditors. Your creditors agree to participate and halt collection efforts (as long as you’re making your payments). They may waive some fees or even lower your interest rate. But they won’t forgive any of your debt. You won’t be able to use credit cards while you’re still in the DMP.

Balance transfer credit cards

Balance transfer credit cards are an option for borrowers with decent credit. These cards have a 0% introductory interest rate for a certain number of months so your balance won't accrue interest during that time. This could make it easier to pay back what you owe. There is usually a one-time fee for each transfer.

Hardship programs

Many lenders offer hardship programs for borrowers experiencing financial challenges. These are rarely advertised, but you may be able to take part in one by reaching out to the company and explaining your situation. This is best done before you fall behind on your payments. The lender may be willing to reduce your payments, waive fees, or lower interest rates to help you out.

Final Thoughts: Take Control of Your Debt With the Right Loan

It’s smart to understand your DTI and check on it now and then to ensure you're financially healthy. If you notice it creeping up, put the brakes on spending or borrowing before it harms your financial health.

Talk to a certified debt consultant today to get an expert opinion on the best way to handle your debt.