Debt ratio: why calculate it?
The debt ratio is one of the key data to study if you want to take a loan . Based on this indicator, the conditions for granting your loan may change. This is why it is important to simulate the debt ratio before taking out a consumer or real estate credit . Our debt ratio calculator gives you the information you need, with ease and without commitment.
The debt ratio makes it possible to know the share of your monthly income allocated to the payment of the installments of your various loans. The calculation of the debt ratio is therefore essential if you want to finance a project with a loan . It will verify that the new deadlines that will generate this loan will not hurt your overall financial situation.
How to calculate your debt ratio for a loan?
The calculation of the debt ratio is simple. You need to start by listing your different sources of income as well as your fixed costs . If you take out the loan with two, do not forget to list the expenses and income of the two co-owners of the loan.
Several elements can be taken into account for the income :
- your taxable salary;
- your possible contractual premiums (like a 13th month for example);
- your profits, if you have an unpaid activity;
- your other potential sources of regular income: rents, annuities, pensions, etc.
Note : sickness benefits and exceptional bonuses are not taken into account. In addition, some financial organizations do not include allocations in the calculation of the debt ratio.
For expenses :
- You have to add up all the regular expenses like your rent for example, any pension payments, etc.
- Also remember to include all the monthly payments of your credits in repayment, if you have any.
Then you simply divide the sum of your recurring expenses by the amount of your income .
Finally, multiply the result by 100 . This will give you a percentage of your debt ratio.
How our debt ratio simulator works
Thanks to our simulator, you just have to fill in some information and the calculation of your debt ratio will be done automatically.
At the level of your resources:
- Are you alone at work or does your household have two sources of income?
- How much are your professional earnings (net wages and potential bonuses)?
- Do you have other sources of regular income (rents for example)? If so, how much are they?
At the level of your expenses:
- What is the amount of your rent if you have one?
- Do you pay back a mortgage and / or consumer loans and if so, how much are their monthly payments?
- Do you have other current expenses (alimony for example)?
You will then have immediate access to your debt ratio, as well as the amount of your remaining life.
What is the maximum debt ratio?
The typical debt ratio not to exceed is usually 33% , including the new monthly loan payments you plan to contract. Beyond this 33%, financial organizations can be more cautious to grant a loan, believing that they take a risk of unpaid too high.
However, the law does not prevent you from taking out a loan if your debt ratio exceeds this threshold. In fact, the decision is up to the lending institution to whom you are addressing. Some may refuse your loan even if you have a debt ratio lower than 33%, or accept it even if you have a debt ratio above this threshold.
In concrete terms, there may be some flexibility for specific cases, including:
- For loans with a short repayment term : in the event of repayment difficulties on the part of the borrower, the lender has the possibility of extending the repayment term in order to reduce the amount of loan maturities.
- For high incomes : since the rest is important, lenders can accept a higher debt ratio.
- For civil servants : job security for teachers, gendarmes, firefighters, etc. is an additional guarantee that may encourage lenders to be more flexible about the maximum debt ratio accepted.