Payment-to-Income Ratio (PTI)
What is payment-to-income ratio on a car loan?
Payment-to-income ratio, or PTI, is your monthly car payment divided by your gross monthly income. Subprime lenders typically cap it somewhere around 15% to 20%, so a borrower earning $3,000 a month is often limited to a payment near $450 to $600 regardless of what they believe they can afford.
Key takeaways
- PTI is the car payment as a percentage of gross monthly income, before tax and before other debts.
- Subprime lenders commonly cap PTI in the region of 15% to 20%, and the cap is a hard limit rather than a guideline.
- Insurance is often counted alongside the payment, which tightens the cap further for borrowers facing subprime insurance pricing.
- PTI is separate from debt-to-income, which counts all your obligations; a deal can pass one and fail the other.
- When a lender approves a smaller loan than you asked for, PTI is one of the two usual reasons, along with loan-to-value limits.
What is PTI?
Payment-to-income ratio is the simplest number in subprime underwriting: your monthly car payment divided by your gross monthly income.
If you earn $3,000 a month before tax and the payment is $500, your PTI is about 16.7%.
Why it decides deals
Subprime lenders cap it, commonly somewhere in the 15% to 20% range depending on the lender and the program. Below the cap, the deal is possible. Above it, the deal is restructured or declined — regardless of how confident the borrower is that they can handle the payment.
| Gross monthly income | Payment at 15% PTI | Payment at 20% PTI |
|---|---|---|
| $2,000 | $300 | $400 |
| $3,000 | $450 | $600 |
| $4,000 | $600 | $800 |
| $5,000 | $750 | $1,000 |
This is why a borrower can be approved and still not get the car they picked. The lender is not saying no to them; it is saying no to that payment on that income.
Note that the calculation runs on gross income, before tax. Your take-home is materially lower, which means a payment that satisfies the lender's cap can still be uncomfortable in practice. The cap protects the lender's loss rate, not your budget.
Insurance often counts
Many subprime programs include the insurance premium in the calculation, or apply a separate insurance test. Since poor-credit drivers face substantially higher premiums in most states, this can be what pushes an otherwise workable deal over the line.
It is worth getting an insurance quote on the specific vehicle before you commit to it. Two similar cars can differ enough in premium to change whether the deal passes.
PTI is not DTI
They are different tests and a file can pass one and fail the other.
- PTI looks only at the car payment against income.
- DTI, debt-to-income, counts all your monthly obligations — cards, student loans, rent or mortgage, child support — against income.
A borrower with no other debt may pass DTI comfortably and still be capped by PTI. A borrower with a modest car payment and heavy card balances may pass PTI and fail DTI.
How to work with it
Increase the down payment, which lowers the amount financed and therefore the payment. Choose a less expensive vehicle. Document all of your income — a second job or consistent overtime often counts if it can be verified over a long enough history.
What does not work well is extending the term to force the payment under the cap. It satisfies the ratio while increasing total cost and deepening negative equity, and some lenders cap the term for exactly that reason.
Related: what stips are and negative equity.
Sources
- Auto Loans Research Reports — Consumer Financial Protection Bureau