Understanding Debt Service Ratio (DSR)
What is a Debt Service Ratio (DSR) or Debt to Income (DTI)?
Debt Service Ratio (DSR), also called Debt-to-Income (DTI), is a percentage that shows how much of your monthly income goes toward debt payments. It's calculated as: (Total Monthly Debt Payments / Gross Monthly Income) × 100. For example, if you earn $5,000/month and pay $1,500/month in debt payments, your DSR is 30%. Lenders often use DSR to assess your ability to take on additional debt.
Why Lenders Often Care About DSR
Lenders use DSR as one indicator of your financial health and ability to repay new loans. A lower DSR suggests you have more disposable income available to handle new debt payments, which may make you a lower risk borrower. A higher DSR suggests you're already using a large portion of your income for debt, which may make lenders more cautious. However, DSR is just one factor—lenders also consider credit score, employment history, and other factors.
Why This Calculator is Only an Approximation
This calculator uses a simplified DSR model for educational purposes. It assumes fixed monthly income and debt payments, doesn't account for variable income or expenses, and doesn't model all the factors real lenders consider. Actual lenders may: use different DSR thresholds, consider front-end vs back-end DTI, include housing costs separately, adjust for credit score and other risk factors, and use their own underwriting rules. This tool is meant to help you understand the concept, not predict actual lender decisions.
Other Factors Real Lenders Consider (That This Tool Does Not Model)
Beyond DSR, lenders typically evaluate: Credit Score: Your credit history and score significantly impact approval and rates. Employment History: Stable employment and income history matter. Credit Utilization: How much of your available credit you're using.Payment History: Whether you've made payments on time in the past. Collateral: For secured loans, the value of assets backing the loan. Other Debts: Total debt load, not just monthly payments. Income Stability: Whether income is steady or variable. This calculator focuses only on DSR as an educational example.
How to Use This Calculator
Enter your gross monthly or annual income, list your existing monthly debt payments (credit cards, auto loans, student loans, etc.), and optionally include other monthly obligations. Set your target DSR (a comfortable level) and max DSR (an upper boundary). The calculator will show: how much room you have for a new monthly payment, the approximate max loan amount you could afford at assumed rates and terms, and how a specific proposed loan would affect your DSR. Use this as a starting point for understanding affordability, but remember that actual lenders use their own criteria.
Note: This calculator is for educational purposes only and does not provide personalized financial advice. It does not predict or guarantee loan approval. Actual lenders use many factors beyond DSR, and their criteria may differ from what you enter here. Always consult with actual lenders and qualified financial advisors for advice specific to your situation.
Frequently Asked Questions
Related Tools
Loan Repayment Calculator
Calculate monthly payments, total interest, and amortization schedules for a single loan
Loan Comparison Tool
Compare 2-4 loans side by side to see monthly payments, total interest, and payoff time
Debt Snowball vs Avalanche
Compare debt payoff strategies to see which saves more time and money
APR vs Interest Rate Explainer
Understand how fees and charges make the true cost of borrowing higher than the advertised rate
Debt Consolidation Loan Benefit Calculator
Compare consolidating multiple debts into one loan vs paying separately
Buy Now Pay Later True Cost Calculator
Calculate the real cost of BNPL services and compare to other payment options
Student Loan Payoff Calculator
Compare student loan repayment strategies and income-driven plans
Interest-Only Loan Calculator
Calculate interest-only loan payments for lower initial monthly costs