Loan Rejection Due To A High Debt-to-Income Ratio; Here Are Tips To Improve

Outlook Money

Loan Rejection and debt-to-income (DTI) factor

When one applies for a loan, the lender does various checks before it decides how one can repay the loan. It looks at credit score, repayment history, and also another factor known as the DTI, which basically is a financial metric that compares total monthly debt payments to monthly income.

Practical steps to improve

1. Prioritize Debt Repayment: One should start by paying off smaller debts or high-interest obligations. This reduces the DTI ratio and positively impacts one's credit score.

2. Avoid New Credit

One must resist the temptation to take on additional loans or credit cards while working on improving the DTI ratio.

3. Re-evaluate Loan Requirements

One should opt for a lower loan amount or explore joint loan applications where applicable, as this can enhance the chances of approval.

4. Budget Smarter

Implementing a strict budget to curb unnecessary expenses and channel more resources toward debt repayment can help improve the financial profile.

Budget

5. Negotiate With Lender

One may also request lenders to extend the tenure of the existing loans, which can reduce EMIs and improve the DTI ratio. However, before proceeding, one should ensure to evaluate the long-term impact and seek advice from a financial planner if needed. 

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