What is a significant consequence of high debt-to-income (DTI) ratios?

High debt-to-income (DTI) ratios reflect the proportion of an individual's monthly income that goes toward servicing debt. When this ratio is high, it indicates that a significant portion of income is already committed to debt repayments. This situation often leads to a reduced capacity to take on additional borrowing, as lenders view high DTI ratios as a signal of potential financial strain. Consequently, an individual with a high DTI may find it more challenging to secure new loans or credit, as lenders perceive them as higher risk.

This high ratio can also adversely affect an individual's creditworthiness, which is a critical factor that lenders assess when determining the terms of a loan, including the interest rate and amount they are willing to lend. A poor DTI suggests that the borrower might struggle to manage their existing obligations, making them less attractive to lenders. Overall, maintaining a healthy DTI is crucial for financial stability and access to credit.