Which factor is typically reviewed by lenders to assess a borrower's ability to repay?

The debt-to-income ratio is a crucial metric that lenders analyze to evaluate a borrower's ability to manage monthly payments and repay debts. This ratio compares an individual's total monthly debt payments to their gross monthly income, providing insight into their financial stability and capacity to take on additional debt. A lower ratio typically indicates a healthier financial situation, making it more likely for a lender to approve a loan, as it suggests that the borrower has sufficient income to cover their existing obligations along with new loan payments.

While factors such as credit history, employment status, and collateral are also important in the lending process, they serve different purposes. Credit history provides a record of the borrower's past financial behavior, employment status indicates job stability and income predictability, and collateral is an asset that secures the loan, reducing the lender's risk. However, the debt-to-income ratio specifically reflects the borrower's current financial situation in relation to their income, making it a central factor in assessing repayment capability.