Exceltemplates.org – Debt to income ratio is used by bank and other financial institution as one of references to determine loan affordability of the applicant. It is a comparison of the total amount of money owed (debt) to the total amount of money earned (income). Higher ratio means affordability of the person to have new loan is lower because the left over in their income is smaller due to the obligation to payback the loan. Bank use this ratio number instead of simply reducing income with debt to determine affordability because many factors including the other monthly expenses should be taken into account as well.
Each bank has maximum ratio number, which allowed client to have new loan. The common maximum ratio used by bank to give loan is around 36% – 37%. If you have lower ratio, your chance for new loan is higher. If you have higher ratio, your new loan application is likely will be rejected.
Before you get rejection and become embarrass, it would be better if you calculate your debt to income ratio yourself prior going to bank. Actually, it is very easy to calculate because you only need to sum up your income and debt, then divide the sum of you debt with the sum of your income, and then turn it into percentage. However, this debt to income ratio calculator will make the job so much easier.
With this excel debt to income ratio calculator, you only need to list up and fill the amount of your income and debt on the appropriate cells. Once you completed, the excel formulas inside this spreadsheet will instantly calculate the total amount of your income, debt, and the ratio. The result of your debt to income ratio calculation will appear at the left up side of the worksheet.
Below the ratio number is classification of debt to income ratio by Gerri Detweiler, the author of “The Ultimate Credit Handbook”. The classification is a good guidance for you to know your financial condition. It is also comes with advice of what you should do about the ratio.
Of course, the classification inscribed in the calculator worksheet is not the only one. The other experts created different classification that may suit you better. Therefore, use the classification and advice in this worksheet for your reference only. It would be wise if you read more references. Your marital status, your family condition, your lifestyle, your neighborhood, and your monthly expenses will affect the significance of your ratio.
When you go to the bank to have new loan, it would be best if you have debt to income ratio under 36%. Nonetheless, each bank has different parameter to decide new loan. In addition, your history with the bank will also affect the approval process. If you have a bad history with the bank, even low debt to income ratio may not able to help you because the bank had lost trust in you. In contrary, a long good history with the bank may lead you to approval although you have slightly higher debt to income ratio to bank limit because the bank has faith in you.