21/11/2022
What is Debt Service Ratio?
Debt Service Ratio, or DSR, is a calculation used by the bank to check whether you can repay the loan.
Your DSR is usually compared against the bank’s maximum allowable DSR limit. If your DSR is within the limit, you stand a higher chance to receive the loan. Normally, the lower the DSR, the better the chance that you can get a loan approved. Best advice is you should always maintain the DSR within 30-40% range.
If you have ever applied for a car, home, or personal loan, you will probably have heard the phrase ‘debt But what is debt service ratio (DSR), and how it can affect the loan approval?service ratio’ from the bank’s loan officers when they explain to you how the loan works.
Do take note that a DSR limit varies according to individuals and their respective levels of net income.
How is Debt Service Ratio calculated?
Total Monthly Commitments / Total Monthly Income X 100% = Debt Service Ratio
The information used to calculate your debt service ratio take the form of these useful documents.
Monthly commitments
Monthly income
Payslip
Property rental yields
Personal loan instalment
Car loan instalment
Housing loan instalment
PRS Withdrawals (for retirees)
Credit card statements
These documents clarify and justify your current financial health and whether you are able to service a loan consistently.
