What term describes the portion of monthly income used to cover debt payments when evaluating loan eligibility?

What term describes the portion of monthly income used to cover debt payments when evaluating loan eligibility?

• A. Debt-to-Income Ratio
• B. Gross Margin
• C. Net Worth
• D. Liquidity

Answer: (A)

This describes the portion of your monthly income used to cover debt payments when lenders evaluate whether you can handle a new loan. It’s called the debt-to-income ratio, or DTI. To figure it out, add up all your monthly debt payments (like credit cards, car loans, student loans, and the mortgage) and divide that total by your gross monthly income (before taxes), then express it as a percentage. A lower DTI means you have more income left to cover new debt, which lenders typically view as safer. The other terms don’t fit this idea: gross margin relates to profit per sale, net worth is assets minus liabilities, and liquidity is how quickly assets can be turned into cash.

This describes the portion of your monthly income used to cover debt payments when lenders evaluate whether you can handle a new loan. It’s called the debt-to-income ratio, or DTI. To figure it out, add up all your monthly debt payments (like credit cards, car loans, student loans, and the mortgage) and divide that total by your gross monthly income (before taxes), then express it as a percentage. A lower DTI means you have more income left to cover new debt, which lenders typically view as safer. The other terms don’t fit this idea: gross margin relates to profit per sale, net worth is assets minus liabilities, and liquidity is how quickly assets can be turned into cash.