Planning to apply for a personal loan, car loan or even a new credit card? Well, before diving into the debt game, you will need to explore one main basic criteria,
‘What is Debt Burden Ratio (DBR)?’

DBR is a mathematical ratio that is used by banks in the UAE and around the world while carefully deciding whether or not your application is eligible for a loan. For a smooth review process, you would need to provide the bank with a set of documents like salary certificate, bank statements and other documents that might be required. This helps bank officials determine whether the applicant will be able to repay the loan.

How is Debt Burden Ratio Calculated?

Here’s a simple way to calculate your Debt Burden Ratio percentage so that you get an idea of how your bank will view your loan proposal. First, you need to consider all your monthly recurring debts such as monthly rent payment, personal loan repayment, car loan amount, 5% of your total credit card limit and all monthly payments related to loans or other financial commitments which are long term. The total sum of these debts must then be added. This resultant number is further divided by your total monthly income or total assets.

Debt Burden Ratio = Debts/Monthly Income
i.e. (personal loan repayment + mortgage repayment + car loan amount + 5% of total credit card limits + any other monthly recurring debt) / Monthly Income

For example
An executive gets a monthly salary of AED 18,000. His monthly liabilities are as follows
• Installment on Personal loan = AED 1,500
• Installment on Car Loan = AED 3,200
• 5% of total credit cards limits = 3800

Debt Burden Ratio(DBR): Monthly recurring Debts /Monthly Income

Total Monthly recurring Debts = 1,500 + 3,200 + 3,800 = 8,500

Monthly Income = 18,000

DBR = 8,500/18,000 = 47%

In the past, banks in the UAE would approve of loans only if the DBR was around 65% or less. Anything more would be rejected or reviewed thoroughly. However, because of this leniency, many applicants couldn’t repay their debt which then lead to banks undergoing huge losses. Now as per the current UAE law, the Debt Burden Ratio has further been reduced to 50%. This way, you aren’t overburdened by the debt amount, too.

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In the above example, the executive is eligible to receive a new loan since his DBR turns out to be 47%, which is well within the limit of 50%. However, since the DBR% is close to the maximum limit, after the new loan, DBR would definitely go beyond 50% and this would make him ineligible to get any new loans

Tips To Reduce Your Debt Burden Ratio
– Boost your monthly income / salary.
– Pay off loans as soon as you can.
– Aim to reduce your loan amount by paying monthly interests on time.

DBR was introduced, not only to ensure the banks are on the safer side by restricting the amount they can lend but also to ensure that lenders do not go overboard by spending needlessly and landing into unnecessary debts.

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