Debt-to-Income Ratio: How Philippine Lenders Calculate It and How to Lower Yours

Debt-to-income ratio (DTI) measures the share of your gross monthly income that goes to recurring debt payments such as loans and credit card obligations; see the calculation steps in How to calculate DTI. This guide explains how lenders in the Philippines use DTI to assess affordability, how to compute it with documented figures, and practical, verifiable steps to improve your standing.

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DTI is the percentage of gross monthly income used to service recurring debt. Lenders treat it as a primary affordability metric. A lower DTI improves the odds of approval, supports larger loan amounts, and can help secure better interest terms. Lenders assess DTI together with income documentation, employment stability, credit history, and collateral where applicable.

The formula

Use the simple formula:
DTI = (Total monthly debt payments / Gross monthly income) × 100

Record figures you can document during underwriting. Do not use estimated or informal amounts that cannot be proven with payslips, bank statements, or ITR.

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1) List recurring monthly debts

Include:

• Minimum credit card payments
• Loan amortizations (personal, auto, home)
• Salary-loan deductions and payroll-based loans
• Merchant instalments and BNPL plans with fixed monthly schedules
• Any declared alimony or regular remittances if the lender counts them

Do not include one-off purchases, variable grocery bills, or irregular utilities unless they are fixed monthly obligations.

2) Determine gross monthly income

Salaried workers: use basic salary before tax and statutory deductions; include verifiable allowances.
Freelancers/sole proprietors: average documented income over the last 6–12 months and support it with ITR, invoices, and bank deposits.
OFWs: use consistent remittance records or contract salary converted to a monthly equivalent.

3) Compute and present

Insert documented totals into the formula and round to two decimal places. Use the computed figure in loan discussions and ensure your submitted documents match the amounts shown.

Typical DTI thresholds used by Philippine lenders (indicative)

These ranges are indicative. Confirm thresholds and underwriting criteria with your target lender.

A high DTI reduces the maximum loan size a lender will offer and may shorten allowable tenors. Underwriters may assign higher interest rates to profiles with elevated DTI to offset repayment risk. Applicants with borderline DTI commonly face additional documentation requests or conditional approvals. In practice, a clean, documented DTI reduces processing time and increases the likelihood of full approval.

Practical, verifiable steps to lower your DTI

• Pay down high‑interest unsecured debt first, starting with credit cards. Principal reduction lowers minimum payments and improves affordability.
• Consolidate only when it reduces monthly amortization and total cost is reasonable; calculate fees and long‑term interest before committing.
• Refinance short, high‑payment loans into longer tenors only if the net monthly payment decreases and the total repayment plan is sustainable.
• Document all legitimate income increases with ITR, contracts, invoices, and bank deposits. Lenders accept verified allowances and commissions if they are regular and supported.
• Add a co‑borrower with stable, documented income when appropriate; ensure both parties understand shared legal obligations.
• Pause new BNPL or merchant instalments during the application period and avoid new credit inquiries for at least three months before applying.
• Align payment dates with salary to avoid late fees and overdrafts that can raise effective monthly obligations.

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• Calculate current DTI with documented figures.
• Gather payslips (1–3 months), Certificate of Employment, and bank statements (1–6 months) for employed applicants.
• For freelancers/sole proprietors: ITR, 6–12 months bank statements, representative invoices/contracts.
• For OFWs: remittance receipts, foreign contract or employment proof, and local bank records.
• Obtain a recent credit bureau report where available.
• Confirm the lender’s DTI policy and any product-specific documentation requirements.

Local example: stepwise improvement (concise narrative)

Maria earns PHP 40,000 gross monthly. Her monthly obligations are PHP 3,500 (credit card minimum) and PHP 5,000 (salary loan), giving a DTI of 21.25 percent. She stops new BNPL purchases and reallocates PHP 1,500 monthly to reduce the credit card principal. She renegotiates one instalment and reduces that payment by PHP 1,500. After three months, monthly obligations drop to PHP 7,500 and DTI to 18.75 percent. The improvement is documented through bank statements and payment receipts, strengthening her loan application.

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Borderline or high DTI often prompts lenders to request extended bank statements, additional payslips, or proof of other income. Frequent late payments, multiple recent credit inquiries, or patterns of overdrafts increase perceived risk. Presenting consistent, verifiable documentation reduces the chance of conditional approvals or declines.

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For guidance on building reserves that support better DTI, see Finmerkado’s emergency fund guide: The Rainy Day Rule: How to Build a ₱5,000 Emergency Fund. For documentation and income strategies for non‑salaried workers, see Freelancer Money Hacks: Tools & Credit Cards That Actually Make Life Easier.

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Compute DTI using documented gross income and recurring monthly payments. Focus on principal reduction of high‑rate debts, careful use of refinancing or consolidation, and robust income documentation. These actions improve lender assessments and reduce processing friction during underwriting.

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