Debt Service Ratio (DSR), a term that will probably be brought up by the bank officer whenever you are applying for a loan. So, what exactly is DSR and why does it seem so important?
Basically, DSR is one of the factors banks use to evaluate the eligibility of the borrower as they perform their due diligence. The method of calculating DSR differs across banks but as a rule of thumb, DSR equals the total monthly commitment divided by the total monthly income of the household or individual. According to a report (link to the report http://www.thestar.com.my/business/investing/2015/01/04/what-is-true-affordability/), the acceptable DSR should be only around 30%, which means that if your monthly income is RM2500, your total debt should not be higher than RM750. The report also shows that the DSR of Malaysian household stood at 43.5% in 2012 and the estimated DSR of civil servants reached a high number of 60%. You might be asking why and how these people have such high DSR numbers, and the answer is simple. Eligibility to a loan does not equate affordability.
Before going any further, let’s first take a look at one of the most common loan in Malaysia, the housing loan. A housing loan is most typically a loan of a large amount provided by a bank of the borrower’s choosing to aid in the purchase of a real estate. Housing loans carry lower interest rates compared to personal or car loans and also have a longer tenure due to the large sum of money involved.
If you are looking for Housing Loan, please call +6011-2930 9300
Prior to the property market slow-down in 2015, loan applications were getting approved easily, which brings us back to eligibility and affordability. Banks typically approve loans based solely on the eligibility of the applicant, including the DSR, CTOS or CCRIS rating of the applicant. In terms of DSR, banks would deem a DSR of 70% acceptable and base your maximum eligibility amount based on that; however, if your financial management capability is not strong, mismanagement of your finances can and will completely ruin your ratings on the CTOS and CCRIS systems. Use this tool (https://loanstreet.com.my/calculator/housing-loan-affordability-calculator ) to get a more realistic view of your maximum loan eligibility. The monthly instalment generated is 70% of your income, which means that if you are earning RM3500 per month, you will be required to commit RM2450 to repaying this loan, leaving you with a mere RM1050. Not a great idea.
Unfortunately, many are unaware of these matters and have fallen into the trap of mistaking eligibility with affordability. The result of their negligence is to become blacklisted by CTOS or CCRIS, which also means that their housing loan application will be rejected.
A feasible temporary solution is to look for a reliable private lender. A reliable private lender means a legal money lender that usually provides a loan with interest rates far higher than those of banks. These lenders are absolutely NOT those you see in posters pasted all over the street. Avoid those at all cost. It might be hard to differentiate the legal from the illegal from the get go but a little bit of research goes a long way as legal private money lenders tend to be located in open public areas compared to shady areas. Apart from that, these agencies are governed under the Ministry of Urban Wellbeing, Housing and Local Government, so doing a reference check before borrowing would benefit you well. The more reliable ones are of course those affiliated with known companies such as the AEON Credit Service.
borrow such a large amount of money with those ridiculous interest rates. These temporary loans can be used to pay off previous debts, reinvested in equipment or things that would help your business, renovate a property to increase rental return, and even set aside to aid in future commitment payments. Once your debt has been cleared and when your monthly commitment is paid in a timely manner, your credit rating will increase. With time, you would be removed from the CTOS or CCRIS blacklist, meaning that you would have a much better chance of getting a loan approval in the future.
You might be interesting in other loan services, you can check Business loan, Personal loan and Housing loan.