Debt-to-Income Ratio (DTI): Meaning, Formula and How to Improve It

Your salary may have increased since your last loan, but so might your commitments. A car EMI, an education loan and a few purchases on installments can leave less room for another repayment than you expect.

Quick answer: Your debt-to-income (DTI) ratio is the percentage of gross monthly income used for debt repayments. Divide total monthly debt payments by gross monthly income and multiply by 100. Below 36% is a useful general benchmark, but Indian loan approval depends on the lender’s own assessment.

What is the debt-to-income (DTI) ratio?

The debt-to-income ratio compares what you must repay each month with what you earn before taxes and deductions. If the result is 30%, you are committing ₹30 of every ₹100 of gross income to debt.

It uses monthly repayments, rather than your entire outstanding loan balance. Someone owing ₹4 lakh does not put ₹4 lakh into the calculation; they use the monthly repayment due on that borrowing.

For a lender, this helps answer a practical question: how much of the applicant’s income is already committed? A person who pays every EMI on time may still have limited capacity for another one.

DTI formula and how to calculate it

The DTI formula is:

DTI (%) = (Total monthly debt payments ÷ Gross monthly income) × 100

Start with your loan statements and credit card bills. Add your regular repayment obligations, including home, vehicle, education and other loan EMIs. Include credit card repayment obligations too; the amount used in a lending assessment may depend on the lender’s method.

Use gross monthly income: earnings before taxes and deductions. For variable earnings, use a representative average supported by records.

Consider Neha, whose gross monthly income is ₹60,000:

Neha’s DTI = (₹15,000 ÷ ₹60,000) × 100 = 25%

A quarter of her gross earnings goes towards debt. This calculation follows the standard gross-income approach described by Axis Bank.

What should you leave out?

Groceries, electricity bills and ordinary rent are not debt repayments, so leave them out of this basic calculation. They still matter when deciding what you can afford.

Avoid counting the same payment twice. If a card EMI is already included in your card repayment figure, do not add it again. Also, do not treat paying only the minimum card amount as a sustainable budget: the remaining balance can continue attracting interest.

Also Read: How to Remove ‘Written Off’ Status From Your CIBIL Report

What is a good debt-to-income ratio?

Below 36% is a useful general target. It suggests a smaller share of income is committed to repayments, leaving more room for other needs. Use the following bands as a broad self-check:

These are simplified planning bands, not universal lending rules. Published guidance differs: Kotak describes below 36% as good, while Axis uses different bands and generally favours below 40%. Crossing 43% does not automatically mean rejection. 

The rupee amount left over matters too. Two households with the same percentage can have very different costs, dependants and savings needs.

How DTI affects your loan eligibility

A lower repayment burden can support loan eligibility because it suggests more room for the proposed EMI. Depending on the overall application, it may also help you qualify for a larger amount or more favourable terms.

There is no guaranteed rate benefit. Your credit score, income stability, repayment record and other loan eligibility factors still matter. Axis Bank’s eligibility guidance, for example, considers income, existing liabilities and employment alongside credit history. 

Include the EMI you are about to add

Return to Neha’s example. Her existing repayments are ₹15,000. If a proposed personal loan adds ₹7,000 a month, her combined repayments become ₹22,000.

Revised ratio = (₹22,000 ÷ ₹60,000) × 100 = 36.7%

That is a more useful affordability check than looking only at her current 25%.

Now suppose her take-home salary is ₹52,000. After ₹22,000 in repayments, she has ₹30,000 for rent, food, travel, family commitments and savings. She should check those expenses before choosing the loan amount. A favourable percentage cannot tell her whether that remaining amount is enough.

DTI vs FOIR: what Indian lenders actually use

In Indian lending, you will also encounter FOIR, short for Fixed Obligation to Income Ratio. It serves a similar purpose: assessing how much income is committed to repayment obligations.

The two terms overlap. The important difference is often the calculation policy, rather than the name.

Do not assume FOIR always includes rent or always uses take-home pay. Definitions vary. ICICI Bank’s explainer uses gross income, while Axis Bank’s eligibility guidance refers to net income in its repayment-ratio assessment. 

Ask which income figure, obligations and proposed EMI are included before comparing your estimate with an eligibility result.

Also Read: How to Remove ‘Suit Filed’ Status From Your CIBIL Report

How to improve your DTI ratio

To reduce the percentage, your monthly repayment obligations must fall, your recognised income must rise, or both. The following steps can help you work towards that.

1. Target a repayment you can remove

Review whether you can fully repay a small outstanding loan without exhausting emergency savings. Removing its EMI can create monthly breathing room.

A part-payment needs a closer look. If it only shortens the tenure and leaves the EMI unchanged, it will not immediately lower this ratio. Confirm how the payment will be applied and check any applicable charges first.

2. Pause new instalment purchases

Before adding another purchase on EMI, total the repayments already leaving your account.

If one existing loan is close to completion, waiting until it ends may leave you better placed to borrow. Continue making every payment on time while you wait.

3. Use a realistic income figure

A sustained salary increase or regular additional earnings can improve the calculation.

For your own budget, avoid treating an occasional bonus as dependable monthly earnings. If your income varies, test whether the EMI remains affordable during a weaker month.

4. Compare debt consolidation carefully

Debt consolidation may help when replacing several repayments with one genuinely smaller monthly obligation. Suppose existing EMIs total ₹18,000 and the replacement EMI is ₹14,000. With income unchanged at ₹60,000, the ratio falls from 30% to about 23.3%.

However, a longer tenure can increase total interest. Compare the annual percentage rate, fees, closure costs and total repayment before proceeding. Consolidation also depends on approval; it is not an automatic solution for a high repayment burden.

5. Check whether a balance transfer saves money

A balance transfer may offer better terms, but work out the savings after all charges.

You can also review these practical ways to improve your loan eligibility.

Before you apply for a personal loan through PayMe, calculate your commitments with the proposed EMI included. Choose an amount that leaves room for essential expenses and unexpected costs. Approval and terms remain subject to eligibility checks.

Disclaimer: This article is for general information and is not personalised financial advice. Ratios and ranges are indicative. Loan approval, pricing and terms depend on the lender’s policies and assessment of the applicant.