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Debt Analysis
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Debt Analysis compares the difference between the monthly income you entered and the monthly amount you spend to maintain your debt (as listed in your credit report or reported by you). This is called a debt to income ratio. Lower debt to income ratios are better because lenders view borrowers with low debt to income ratios as having a better capacity to repay their debts.
You are currently using 23% of your monthly income to repay debt. The amount of debt that you have is considered moderate when comparing it to your income. This level of debt is generally manageable for most people. Lenders generally view debt to income ratios between 20% and 39% as Good.
Lenders will generally view this level of debt satisfactory when qualifying you for a loan. Most often, a debt ratio within this range along with a good credit standing will entitle you to receive the best interest rates and in some cases provide less collateral.
Your debt to income ratio falls into a range between 20% and 39%. If you are at the lower to mid point in the range, you could probably afford to take on additional debt if needed. At the upper end of the range, additional debt may cause you to be over extended.
If you are in the low to mid point of the range, this may be an ideal time to consider making major purchases such as a new home, car, or make those investments or home improvements you have been considering.
If you are at the upper end of this range, additional debt may cause you to become over extended. It is important to keep in mind that individual or household capacity for debt can vary significantly. Your lifestyle or stage in life can dramatically influence your ability to carry debt. In these ranges of debt to income, you are probably able to save a small to substantial part of your income each month. If you are unable to save at this debt level, you need to be willing and able to cut back on discretionary spending. Cutting back on things like recreation, entertainment, vacations etc., would put you in a much better position to save as well as being able to handle additional debt more comfortably.
At the upper end of this range, lenders may look for compensating factors such as a good credit standing, your ability to save, or higher collateral in relation to the loan amount.
Remember that your debt to income ratio is not the only criteria used by lenders to evaluate your creditworthiness. Additional factors include your credit score, and in some instances, any collateral you have to offer to reduce the lender's risk in case of default. These and other personal factors are evaluated according to each lender's policies and preferences.
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