Total Debt Service Ratio: What Is It And Why Does It Matter

BusinessTotal Debt Service Ratio: What Is It And Why...

For most borrowers, taking out personal loans seems as simple as visiting an authorised money lender, choosing which loan product to take out, and reading the agreement. However, for those who truly want to improve their credit score and make the most out of their loans, grasping some key metrics is important. After all, the lending industry uses them to evaluate borrowers’ ability to repay the loan. 

Among those metrics is the Total Debt Service Ratio (TDSR). To help you be familiarised with it, let’s read up on what it is and why it matters.

What is the total debt service ratio?

Imagine you have a close friend who asks you to lend him money because he has to cover his father’s sudden illness. You, as an individual lender, are probably thinking about how your friend will be able to pay you back. To prove that he can pay you back, he shows you his employee pay slips every month.

It is the same with money lenders looking at your total service debt ratio. by measuring the percentage of your gross monthly income that will go towards repaying all of your debt obligations, like personal loans, vehicle loans, mortgages, etc.

Why does the total debt service ratio matter?

Why does the total debt service ratio matter? Does it matter half as much to the money lenders? Well, basically yes, TDSR has been used by money lenders to assess the ability of the borrowers to manage their monthly income because it reminds them that they will have the obligation to repay all of the debts they have taken without falling into a financial crisis. 

While TDSR is an important tool to the lender, it can also be very helpful to borrowers themselves, as computing and considering this important metric would help them to always have better financial health. Their TDSR also helps borrowers determine if they are eligible for bigger loans.

How is the total debt service ratio calculated?

Calculating the amount of TDSR involves dividing the borrowers’ total monthly debt obligations by their gross monthly income. And then it would be multiplied by 100 to get the percentage. For example, if you are a borrower who has already taken loans to cover many payments, like vehicle loans of $500, a personal loan for emergency funds of $250, and a mortgage loan of $2,000. And you have a monthly income of $6,000. How much is your TDSR?

It would be calculated as: (2,000 + 500 + 250) / 6,000 * 100 = 45.64%. In Singapore, the Monetary Authority of Singapore (MAS) has ruled that TDSR is currently capped at 55% of the borrower’s gross monthly income. This regulation is to ensure the borrowers will not borrow more if the result of their TDSR is above the specified percentage. 

How do I get the best TDSR?

The lower the percentage of your TDSR, the better your financial profile is. This means you’re likely to secure favourable loans.

If you want to keep it manageable, there are two strategies you can implement. The traditional way is, of course, by increasing your monthly income. Alternatively, you can refinance your current multiple high-interest debts into a single loan with a lower interest rate to reduce your monthly debt obligations, which means your TDSR will go up.


Understanding and monitoring your TDSR well is an effective and real way to implement financial planning to maintain healthy finances. It’s also a great way to gauge if you are eligible for bigger and more favourable loans. Thus, before going to a well-trusted money lender in Singapore, such as MM Credit, it’s important to have an idea of this metric. 


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