How do you find a lender to approve your unsecured personal loan when you have a high debt to income (DTI) ratio?
Your DTI is not part of your credit risk score. However, banks use the ratio as an additional underwriting tool to project the affordability of a new loan.
This means that managing to what the ratio will be in the future (not today) is the secret to success. Follow these two strategies.
- Work with online lenders who specialize in debt consolidation
- Take steps to lower the ratio and improve qualifications
High Debt to Income Personal Loan Lenders
High debt to income personal loan lenders specialize in helping consumers with good credit scores to lower their monthly payments. Each company has its own acceptable DTI level and calculation equation. You may need to document some of these basics during an interim stage of the evaluation.
Monthly Debt Service Payments/Monthly Gross Income = DTI
|Debt Service||Gross Income|
|Credit Cards||Job Employment|
|Student Loans||Child Support|
The best way to get a personal loan with a high DTI ratio is to work with a specialty lender that operates online. The place you turn matters.
Debt Consolidation LendersRequest an unsecured personal loan for debt consolidation here. Gain instant access to a network of specialty lenders that target consumers with good credit scores and high debt to income ratios. Be prepared with the information the company needs to make a yes decision.
- Credit score range
- Monthly earnings and source
- Employment verification
- Checking account and routing number
- Driver license number
Use a portion of the funding to pay off existing obligations (credit cards and medical bills) and combine payments into one. Although you are opening a new account, the amount of money you owe remains the same, while your monthly payment may go down.
- Lower interest rates could save money over time
- Longer repayment terms could ease the pressure
A network of online personal loan lenders for high debt to income borrowers with good credit scores increases the odds of an approval. Many traditional brick and mortar banks and credit unions are not the places to turn as they cherry pick consumers with needs that are more basic.
Complete a single web-based form and a large number of specialty companies will review your profile and bid on the opportunity to present offers. This approach provides several advantages to you over applying to multiple direct lenders when you are seeking to consolidate other obligations.
- Volume increases your odds of approval
- Only one hard inquiry appears on your report
How to Lower Debt to Income Ratio
Lowering your debt to income ratio in advance is a second way to increase your chances of an unsecured personal loan approval. A lender may find your case more acceptable after you reduce the fraction below certain levels. Each outfit uses different criteria.
There are two ways to improve your DTI ratio just like any other fraction!
- Cut the numerator (monthly debt service obligations)
- Boost the denominator (monthly income from all sources)
Reduce Monthly Debt Service
Reducing the amount of money you owe every month is the first way to lower your debt to income ratio, and improve your chances for a personal loan approval. You could be able to accomplish this by quickly adjusting the terms of your request, by moving money around in your accounts, or by working with a settlement company.
Do you qualify for debt relief? If you unable to stay current and owe more than $10,000 in unsecured obligations (credit cards and medical bills), you may want to explore whether a settlement program is the best way to reduce your monthly obligations.
People in delinquency with a DTI that is too high rarely qualify for a new loan. However, being behind on payments actually speeds the settlement process along. Creditors fear to lose the entire balance and are more willing to negotiate once you have funded the escrow account.
Lengthen Payment Terms
Longer-term loans have lower monthly payments. If you have a good credit score, you can reduce your projected periodic installments by lengthening the repayment terms. A loan with a five-year repayment term is more affordable than one with a one-year schedule.
Lenders consider your projected DTI percentage based, in part, upon the size of new monthly payments.
A credit card balance transfer is another way to reduce the amount of your monthly debt service. You will need to have open to buy on a credit card account in order for this to work. Open to buy is the difference between the limit and the outstanding balance.
A balance transfer could help in two ways.
- Low or zero interest promotional offers save money
- Paying off an installment contract could extend the repayment time-frame
Increase Monthly Income
Increasing the monthly income that you can document is the second way to lower your debt to income ratio, and enhance your chances of a personal loan approval. You can boost the amount of revenue you show with a second or side job, requesting a joint account, or by utilizing a co-signer.
Getting a raise, a second job or starting a side hustle the safest way to improve your DTI. Extra money coming in every month inflates the denominator of this fraction. Follow this very simple example.
- 1/4 = 25%
- 1/5 = 20%
Establish a verifiable history of the extra earnings. Keep copies of any 1099 statements from any self-employment gigs such as freelancing, rideshare driver, etc.
Requesting a joint account is another way to improve your DTI ratio. If your spouse also works, adding his or her salary into the mix also inflates the denominator of this percentage.
Two salaries are more reliable than one, and present a safer bet for banks. Think about diversification. Keep in mind that your spouse may bring his or her own debts into the equation – along with another credit score – which may help or hurt.
Adding a co-signer does not directly improve your DTI percentage. However, a co-signer does lower the overall risk you present to the lender because this person is also responsible for tapping into his or her income if you fall behind on payments – something that is very likely when your existing obligations consume too much of your monthly revenues.
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