How do banks interpret an individual's high debt-to-income ratio?
The individual would have to pay a small proportion of annual income for the amount of debt he or she has and is among the low-risk borrowers.
The individual would have to pay a large proportion of annual income toward paying off the debt but is among the low-risk borrowers.
The individual would have to pay a large proportion of annual income for servicing the debt and is among the high-risk borrowers.
The individual would have a large amount of debt for the amount of savings he or she has but is among the low-risk borrowers.
The correct answer is: The individual would have to pay a large proportion of annual income for servicing the debt and is among the high-risk borrowers.
When banks evaluate an individual's debt-to-income ratio, they consider it as an indicator of their ability to repay loans. A high debt-to-income ratio indicates that a significant portion of the individual's income goes towards paying off debts, which can make it challenging for them to successfully manage additional financial obligations. This high ratio is seen as a higher risk for the bank as it suggests the individual may struggle to make loan payments or may be more susceptible to financial difficulties.