What is Debt-to-Income Ratio?
The debt-to-income (DTI) ratio is a personal or corporate finance metric that compares total monthly debt payments to monthly gross income. Lenders use it to assess a borrower’s ability to service additional debt. A lower DTI signals healthier capacity to take on new credit, while a high DTI indicates stretched financials.
How It Works
- Sum all monthly debt obligations: loan instalments, credit card minimum payments, and lease commitments.
- Determine monthly gross income for the individual or business.
- Divide total monthly debt payments by monthly gross income and express as a percentage.
- Compare to lender thresholds and benchmarks; below 35% is usually acceptable for personal loans, while corporate thresholds vary by sector.
Saudi Context
SAMA caps the personal DTI of Saudi consumer loans at strict thresholds (around 33%-45% depending on the borrower’s income and obligations), supported by SIMAH credit bureau data. SME lenders also use DTI alongside debt service coverage ratios when underwriting working capital and expansion loans.
Example
A Saudi professional earns SAR 25,000 per month and pays SAR 7,500 in housing loan and credit card instalments. DTI is 30%, within SAMA’s recommended range and acceptable for further credit consideration.