All About Debt Service Ratio and How to Calculate It

Admin BFI
20 January 2022
All About Debt Service Ratio and How to Calculate It

Did you know, DSR or Debt Service Ratio is one of the important assessing components in financing proposals by prospective debtors to Financing Companies or Banks? You must have been asked by the Marketing team to provide proof of the monthly income you get. The income proof requirement is used as a divisor indicator in calculating the Debt Service Ratio. What is DSR and how is it calculated? Find out more in the following article!

Definition of Debt Service Ratio (DSR)

Debt Service Ratio (DSR) is the ratio of the amount of debt to the income received each month. In some cases, the higher the DSR ratio and outside the recommended limit, the greater the possibility that the prospective debtor's financing application will not be approved. Because the finance company considers that there are too many obligations or debts that the prospective debtor must pay if he applies for new financing, he will have a greater tendency to default.


Why is the Debt Service Ratio important? DSR is useful to find out whether prospective debtors can pay monthly installments based on their financial history; by looking at the number of obligations or debts you have when submitting an application compared to your monthly income. If your DSR results fall within the safe range of the standard owned by the Financing Company, then it is highly likely that your financing application will be accepted.

Fair Percentage Debt Service Ratio

Referring to the science of financial planning, a fair percentage of the Debt Service Ratio is 30% - 40%. More than the recommended percentage, it can be a warning to reduce existing debt. The following table describes the credit rating to the DSR ratio:

Credit Scoring Debt to Income Ratio
A X < 30%
B 30% < X < 35%
C 35% < X < 40%
D X > 40%

You can refer to the table above before applying for a loan to a financing company or bank. It can be seen that if the DSR percentage exceeds 40%, the credit rating will be lower. That means the finance company or bank will reconsider your financing application to be approved or not.

How to Calculate DSR

The formula for calculating the Debt Service Ratio is quite easy. That requires only two components, namely Total Debt Installments per month and Net Income per month. Here is the complete formula:

DSR = (Total Debt Installments per Month: Net Income per Month) x 100%

Example calculation:

Pak Bayu works as a private employee with a monthly net income of Rp 12,000,000. Every month, Mr. Bayu has an installment or debt that must be paid in the amount of IDR 4,000,000 with the following details:

  • KPR IDR 300,000,000 with monthly installments of IDR 3,500,000
  • Credit card with monthly installments of IDR 500,000

So, Pak Bayu's DSR is:

= (Total Debt Installments per Month: Net Income per Month) x 100%

= [(3,500,000 + 500,000) / 12,000,000)] x 100%

= 33%

From the above calculation, it can be concluded that Mr. Bayu must allocate at least 33% each month of his income to pay the installments.

After you know the meaning of the Debt Service Ratio, then hopefully you will be wiser in managing debt. Do not let your total debt exceed the existing reasonable limit. As a result, you will find it difficult to pay debts and will worsen the value of your SLIK if there is a default.

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