Author Topic: Question about Debt to Income  (Read 1541 times)

Kvothe

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Question about Debt to Income
« on: February 01, 2017, 09:50:43 PM »
Hi.  I just started investing at LC and the Debt to Income ratio isn't adding up for me.  I know mortgages are not included in the calculation, but is revolving credit also not included?  I will see people making 40k per year with a low debt to income ratio but carrying 20k in credit card debt.  The ratio is shown in the section that says it is not verified, but I would think it would consider the debt that can be verified through the credit agencies.

An example is loan ID 96722994.  This person is claiming they make 65k per year with a D/I of 11.71.  But they have credit card debt of 12,387.

Thanks.
« Last Edit: February 01, 2017, 10:06:42 PM by Kvothe »

Fred93

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Re: Question about Debt to Income
« Reply #1 on: February 02, 2017, 03:27:55 AM »
Hi.  I just started investing at LC and the Debt to Income ratio isn't adding up for me. ...
An example is loan ID 96722994.  This person is claiming they make 65k per year with a D/I of 11.71.  But they have credit card debt of 12,387.

"Debt to Income" confused me when I started with Prosper & LC lending too.  It's apparently standard lending lingo, but its name doesn't say what it means.  It is not a ratio of debt to income, but is a ratio of required debt payments to income.  In other words, the fraction of income which must go to pay debt.

$65k/year income and DTI 11.71% implies $7611 in required payments per year.  (Not counting mortgages, not counting the LC loan, not counting debt which didn't get reported to the credit reporting agency LC uses, not counting loans to the loan shark who doesn't bother to report to agencies, etc.)

M0lina

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Re: Question about Debt to Income
« Reply #2 on: February 02, 2017, 09:16:42 AM »
I'll add two additional points to the conversation :

1) DTI is not consistent across all platforms.
    Lending Club:  Current Monthly Debt/ Monthly Income
    Prosper: ( Current Monthly Debt + Scheduled Monthly Payment of Prosper Loan )/ Monthly Income.
   
2)  Rule of Thumb is a credit card monthly payment is 1% to 3% of the total outstanding balance.  Though some issuers with calculate the monthly payment as  a percentage factor * outstanding balance +   accrued monthly interest.  Sometimes a good sanity check to estimate the monthly credit card payment ( aggressive or conservative percentage factor) to  compare against current monthly debt.