Does Leasing a Car Count in Your Debt to Income Ratio?

Calculating your debt-to-income ratio can be sobering because it forces you to account for your monthly expenses and determine if you're too deep in debt. Some living expenses generally aren't included in the ratio, but it's important to include auto lease payments. Vehicle and housing expenses are often the largest debts people have, so excluding those costs creates an inaccurate debt-to-income ratio.

Function

The main purpose for calculating a debt-to-income ratio is to determine whether the total amount of your debts exceeds or nearly exceeds your income. The ratio ultimately shows you how much of your pre-tax or gross income goes to paying your debts each month. Therefore, your car lease payments need to be included. Lenders and creditors also look at peoples' debt-to-income ratios when they determine whether to approve loan and credit applications. According to Bankrate, it's best to keep your debt-to-income ratio below 36 percent to avoid accumulating more debt than you can afford to repay.

Ratio Calculation

You calculate your debt-to-income ratio by dividing your total monthly recurring debt by your gross monthly income and multiplying the resulting number by 100. Bankrate defines recurring debt as fixed payments you make each month for rent, a mortgage, a car payment, loans and the required minimum monthly payment on credit cards. Living expenses for groceries, gasoline, utilities and entertainment aren't included in the calculation. Someone who has monthly recurring debts that total $1,500 and a gross monthly income of $3,200 has a debt-to-income ratio of 47 percent, which is generally too high. Excluding a car lease payment from the calculation would lower a debt-to-income ratio, but it also wouldn't give a realistic picture of a person's debt situation.

Reducing Debt

Look for ways to reduce your debts if your debt-to-income ration exceeds 36 percent. That may include leasing a less expensive vehicle after your current auto lease expires. You can recalculate your ratio to determine how much you need to reduce your debt so that the ratio doesn't exceed 36 percent of your gross income. For example, a person whose gross annual income is $50,000 should multiply that amount by 0.36. The resulting amount shows that $18,000 is 36 percent of $50,000. By dividing $18,000 by 12, this person would find he shouldn't pay out more than $1,500 per month to cover recurring debts to keep his debt-to-income ratio at 36 percent.

Considerations

A high debt-to-income ratio affects more than your monthly expenses. A high ratio can prevent you from getting credit cards, loans and leases. For example, an auto leasing company may reject a lease application from a person who has a large amount of debt. The company may be concerned that the applicant won't be able to handle lease payments along with the debts he already has to pay even if he pays his other bills on time.