How does debt impact my ability to take out a loan for a large purchase?
Curious about Paying off debt
Debt can impact your ability to take out a loan for a large purchase in a few ways. First, if you have a lot of existing debt, it may affect your credit score, which is one of the main factors lenders consider when determining whether to approve a loan. A low credit score may make it harder to get approved for a loan or result in higher interest rates, which can make the loan more expensive over time.
Secondly, your debttoincome ratio (DTI) is another factor that lenders consider. DTI is the amount of debt you have compared to your income. If you have a lot of debt, it can make it more difficult to qualify for a loan because it increases your DTI, which can make you seem like a higher risk to lenders.
In general, it's a good idea to pay down your debt as much as possible before applying for a loan. This can help you improve your credit score and lower your DTI, making it more likely that you'll be approved for a loan and get a better interest rate.