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Auto Loans with High Debt-to-Income Ratio (DTI): Possible?

Yes, it is possible to get an auto loan with a high debt-to-income ratio or DTI. It will take a little more effort than just going to your local bank and applying, though. Here are a few options that you have open to you.

How to Calculate Your DTI

First things first, let’s look at how your DTI is calculated by a lender. You need to add all of your recurring payments, including the payment for the loan you are applying for. These items include:

  • Housing costs
  • Credit cards
  • Utilities (cable included)
  • Loan payments

After adding all of those together, you need to divide that number by your gross monthly income. Let’s say your monthly payments equal $1,400 and you have a gross income of $3,500 your DTI would be 40 percent. Since large lenders have a cutoff of 34-36 percent, your loan would be denied because you have a high DTI, leading you to look for other options.

Credit Unions

One option that you may have is a local credit union. Credit unions traditionally have looser lending guidelines than most banks, so are willing to accept a higher DTI. Credit unions usually only make loans to members, so you will want to talk to an account representative before applying. Be sure to ask if the credit union will offer a loan to someone with your DTI, then find out what the membership requirements are. Normally, becoming a member is as easy as opening a savings account. Here is a list of credit unions that offer auto loans.

Specialty and Subprime Lenders

There are many specialty lenders operating who welcome applicants with a high DTI. They understand that people with debt still need auto loans, so they offer them everyday. Many of these lenders will work with someone who has a DTI as high as 45 percent. These loans do come with a few provisos, though. You need to expect to pay a higher interest rate than you might want to. Interest rates for these loans can be as high as 18 percent. You may also need to provide a cash down payment in addition to any trade that you have. Lastly, these loans will have a shorter repayment period, perhaps as short as thirty months.

Your final option is to pay off some debt. The difference between approval and denial could be something as simple as eliminating a single credit card balance. You can develop a six month plan to attack the card with the lowest balance.

Our Perspective

As stated previously, there are subprime and specialty companies that can offer you financing despite your DTI. The hard part is finding them. Fortunately, we work with many such companies all over the country. You can apply online via our secure application, then wait as we place your application with a lender willing to fund your loan after reviewing your income, debt, location, and other factors.