Moneylenders use the debt-to-income ratio as a way to measure an individual’s capability to manage their debt repayments and the payments made each month. This is meant to compare your debt amount you have with your overall income.
Having a good credit score may not guarantee that you will get a personal loan from a bank or other money lending institutions. Banks frequently reject loan applications from individuals whose debt-to-income percentage is high.
Therefore, what is the debt-to-income ratio and why is it so important to a potential borrower.
What Is Debt-To-Income Ratio – DTI
Debt-to-income ratio-DTI isn’t part of a borrower’s credit score. It is instead something that banks and moneylenders use to establish your ability to pay back the personal loan taken. When your debt-to-income percentage is high, bankers and moneylenders are likely to turn down your loan application. This is because a high DTI shows that a borrower has a lot of debt for the income they have. This for a lender means you may not be able to manage the repayment of the loans you take out.
DTI is calculated by dividing the total debt service payments for each month by the gross income for each month. The DTI is often expressed using percentages. When you have a debt-to-income ratio of 36% and above, then it means your DTI is high. And the likelihood of your money lender approving your loan application is significantly reduced.
Therefore, you have to work at lowering your debt-to-income ratio ahead of applying for a payday loan. Below are some useful strategies that will help you notably decrease your DTI percentage.
Debt Settlement Plan
When your debt amount is above $10,000, you need to consider debt settlement as a key option for you to decrease the high debt-to-income percentage. When you take on a debt settlement plan, you will be able to give a lump sum of money to your lender. This way you are able to reduce the actual payday loan amount you owe.
This will also contribute positively to reducing your DTI ratio hence giving potential money lenders confidence in your ability to repay the loan taken thus making them approve your loan applications fast and with ease.
Change Repayment Terms
In order for you to reduce your debt payments for each month, you may do so either by consolidating your debt or in extending your debt repayment plan you had set with your money lender. Having a one-year debt repayment plan will more likely increase your debt repayment instalments for each month. On the other hand, a 5-year repayment program will greatly reduce your debt repayment instalment for each month.
Even with this new debt repayment plan, it is important for you to realize that by extending the repayment period you will pay more money in the end. But on the bright side, it will do away with any financial strains and stress when repaying your debts thus ensure you make your monthly instalments with ease.
Transfer Your Debt Balance
In the debt transfer plan, you are able to get yourself a credit card which will help you pay one of the smaller debts you owe using the cash advance option. Despite the fact that the amount you owe stays the same, your debt instilment for each month are greatly reduced after you have closed one instalment account.
Increase Your Income
In order for you to increase your monthly income, you may consider taking a side job. There are many job offers in Singapore today, therefore, do a good such for a job that will not affect your usual 8-5 job schedule. Any employment that increases your income for each month will positively help you do away with your debt easy and fast. It will also help reduce your debt-to-income percentage of your personal finance.
Asking for a pay rise will also increase your income level and it’s also t easier to do. You may also consider turning your hobby into a business, this way you are able to bring in more money. The goal is to offset all your urgent debt you owe and in turn, reduce your DTI ratio.
Finding Places That Offer Loans To individuals With High DTI Ratio
Most licensed moneylenders in Singapore are known to offer personal loans even to people whose debt-to-income ratio is on the higher side. Though, you should have a reasonably good credit score.
All the Legal lenders in Singapore are under the Registry of Lender’s authority. This means they are expected to manage their money lending businesses in accordance with the laws and rules put in place by the registry.
In general, the Lender’s Registry decides on some aspects of the money lending regulations such as the maximum loan amount to be offered, fees to be charged, and the rates of interest the money lender can charge on any loan.
The interests charged by the licensed money lender are higher compared to those by banks. When you have all the proper documentation, your licensed money lender will more likely process your loan application a lot faster and in a short amount of time. There are some money lenders who may do some background checks on you for them to assess the lending risk involved.
When you have recently taken a loan from another money lender, they may not approve your loan application. Even then, most licensed money lenders available in Singapore do approve your loan application. Provided it doesn’t increase your debt for each month to above a specified threshold.
Debt-to-income ratio-DTI is not part of your credit score. It is instead a ratio that banks and moneylenders use to establish your ability to pay back the loan taken. To ensure you qualify for loans easily, there are useful strategies that will help you greatly decrease your DTI percentage.
One is increasing your income either by taking a second job or asking for a pay raise. Payment of lump sum to your debtors will also affect your debt ration positively. And the transfer of debt balance will also help reduce your instalment accounts to less more manageable ones hence strengthening your DTI.