What's a Payment to Income Ratio?

Get Car Financing
Even with poor credit.

By

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - December 12, 2018

A payment to income ratio – or PTI – is a calculation used by lenders to help determine your eligibility to finance a vehicle, either new or used. Your PTI shows the portion of your monthly income taken up by a car payment, and it's a percentage you can use as you're budgeting for your next vehicle.

Why PTI is Key

Believe it or not, lenders are on your side when you finance something major like a car. If you think about it, there's no endgame for a lender that encourages borrowers to take out a loan they can't handle – repossession is just as hard on the lender as it is on the borrower. Lenders want you to take out a loan that you can handle, and that means making sure a monthly car payment fits within your budget.

Think about your total gross (pre-tax) monthly income – a number that represents 100 percent of your budget. Each thing you pay for over the course of a month represents a percentage of your monthly income. Since lenders want your monthly car payment to be affordable, they typically cap a vehicle PTI between 15 and 20 percent of your total monthly income. If your car payment takes up more than that, you run a higher risk of defaulting on your auto loan and having your vehicle repossessed.

Calculating a payment to income ratio isn't an exact science, but it’s a common guideline that's followed by lenders that finance people with poor credit.

Calculating Your PTI

When you're setting your budget, it's easy to find a comfortable payment range for your next vehicle by calculating your PTI. First, take your pre-tax monthly income, and multiple it by 0.15, then repeat the process multiplying by 0.20. The totals represent your high and low monthly payment amounts. Calculating your monthly payment range typically gives you a good goal to reach for when car shopping.

For example: If you had an income of $2,400, this is how you would calculate your PTI range. $2,400 x 0.15 = $360 and $2,400 x 0.20 = $480. So, in this example, a good car payment range would be $360 to $480 per month.

Just Part of the Equation

Knowing your payment range is a great way to begin preparing to buy a car. But computing your PTI is only one part of the equation when you need financing. Because an auto loan is only part of your overall debt, lenders also look at your debt to income (DTI) ratio to ensure that a monthly loan and car insurance payment both fit into your budget. Adding these two payments to your overall monthly bills shouldn't take up more than half of your monthly pre-tax income.

Another factor in financing is your credit score. It determines what type of lender you can use, and is typically the basis for your interest rate. When it comes to credit, the lower your credit score, the higher your interest rate is likely to be.

Knowing where your credit stands is an important step in the car buying process. You should never let a lender determine your credit for you. Knowing your score protects you from getting an unnecessarily high interest rate, and also helps predict what you can expect when you're setting your budget.

Additionally, plan on requesting your credit reports and viewing at least one of your credit scores before you head to the dealership. This gives you a chance to review your reports for accuracy, while having incorrect information removed can help bring up a score that's sagging.

Getting the Right Help

Another way to improve a poor credit score is with a car loan. If you're worried that bad credit is going to stop you from getting the auto financing you need, don't fret. There are special finance dealers all across the country that work with lenders prepared to take on just that challenge. Here at CarsDirect, we know where to look when you're in just this situation.

Our process is free of charge and obligation, so don't hesitate. Simply fill out our easy online auto loan request form, and we'll get right to work matching you with a special finance dealership in your area from our nationwide network. Get started right now!

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.

Get Your Free Score

Auto Insurance

Get competitive quotes on insurance in your area.

Sell Your Car

We will buy any car, running or not, with or (in most cases) without the title.

Get My Price

Need a Car Loan?

It only takes a minute.

Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Terms of Use|Cookie Policy|Disclaimer
COPYRIGHT 1999-2019 MH Sub I, LLC dba CarsDirect.com