Answer to Question #142714 in Finance for sisi

Question

Louise is considering if she can afford a new personal loan for taking a vacation in Europe. Currently, Gisele works as a marketing manager in an advertising agency, earning a gross income of $40,000 per month. Her employer withholds a total of $2,000 for retirement contributions from her monthly pay.
Each month, she also has to pay 4,200 for credit card debts, $3,500 for personal
debts and $2,500 for her education loan.
The new installment loan she needs for the European holidays will cost an additional
$4,000 per month.
What is Louise’s current debt payments-to-income ratio? Suggest if Louise can afford
the installment loan for her European trip or not.
Explain your answers. Show all your calculations

Answer 1

Total debts$=2000+4200+3500+2500+4000$

$=16200$

Debt payment to income ratio$=\frac{16200}{40000}$

$=0.4$

From this ratio it indicates that Louise has credit worthiness therefore she can afford the installment loan for her European loan