What is DBR?
The debt Burden Ratio (DBR) is a financial ratio which depicts the portion of your regular income required to settle your regular debt obligation. Mostly, it is used by banks or financial institutions to determine the eligibility of the borrower to apply for a loan. It is also considered to determine the maximum amount of loan the borrower can apply for.
Why is it calculated?
When you are already having regular debt obligations, your income will first be settled to such debt after your basic requirement. In simple words, you are not going to utilize all of your regular income to pay off your debt.
Hence, when you apply for any personal loan, car loan, housing loan or marriage loan etc. banks & financial institutions want to know your DBR to determine whether you are eligible to apply for the loan or not & if yes, then to what extent. Suppose standard DBR is 50% and your DBR comes as more than 50% say 70%, you are not eligible to apply for the loan even if you are providing enough collateral for the same.
How is it calculated?
It is calculated by dividing your regular debt obligation by your regular income.
Illustrations 1:
Suppose standard DBR is 50% and you are earning a monthly income of Rs 1,00,000 & your monthly debt obligations are as follows:
Car loan installment: Rs 25,000
Housing loan instalment: Rs 45,000 then your eligibility for the loan will be determined as under:
Here, your total monthly debt obligation is Rs 70,000 as against your monthly income of Rs 1,00,000. Hence, your DBR will be calculated as follows:
DBR = Regular Debt Obligation/ Regular Income
= 70000/100000 = 70%
Since your DBR comes as 70% as against the standard i.e. 50% you are not eligible to apply for the loan.
Illustrations 2:
Suppose standard DBR is 50% and you are earning a monthly income of Rs 200000 & your monthly debt obligation are as follows:
Car loan instalment: Rs 25000
Housing loan instalment: Rs 45000, then your eligibility for the loan will be determined as under:
Here, your total monthly debt obligation is Rs 70000 as against your monthly income of Rs 200000. Hence, your DBR will be calculated as follows:
DBR = Regular Debt Obligation/ Regular Income
= 70000/200000 = 35%
Since your DBR comes as 35% as against the standard i.e. 50% you are eligible to apply for the loan.
