Applying a loan is not easy and is, in fact, a very long and tedious process. When your loan goes for approval, your debt service ratio is a major consideration. It is a strong decisive factor and you need to make sure it’s good to prove to your loan officers that you have good credit worthiness. Every record from your credit history to your occupation is taken into consideration too.

But what is debt service ratio (DSR), and how it can affect the loan approval?

What is Debt Service Ratio?

If you have ever applied for a car, home, or personal loan, you will probably have heard the phrase ‘debt service ratio’ from the bank’s loan officers when they explain to you how the loan works.

What exactly does it mean? 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.

Do take note that a DSR limit varies according to individuals and their respective levels of net income.