Total Debt Servicing Ratio (TDSR) is an important factor in assessing your eligibility for a personal loan. In Singapore, lenders consider TDSR when reviewing and approving loan applications. This article will explain what TDSR is, how it affects your loan application and how it can be improved to increase your chances of getting the loan you need.

What Is Total Debt Service Ratio (TDSR)?

The Total Debt Service Ratio (TDSR) is a calculation used by lenders to evaluate applicants' ability to meet their debt obligations. It measures the percentage of income that goes towards servicing all debt, including housing loans, car loans and credit cards. To ensure that borrowers do not take on more debt than they can handle and that financial institutions are lending responsibly, borrowers must maintain a TDSR ratio below 55% (as of 2023). TDSR ratios that exceeds this threshold signifies that an applicant may not be able to repay their loan obligations.

All banks and financial institutions in Singapore must follow the TDSR framework when assessing home loans, car loans, personal loans, credit card balances, and student loans.

How is TDSR calculated?

The formula for calculating TDSR is as follows:

(Borrower’s total monthly debt obligations / Borrower’s gross monthly income) x 100%

Let's say a borrower’s gross monthly income is S$5,000 per month. Since he is required to maintain a TDSR ratio below 55%, his debt obligation must not exceed S$2,750 (55% of S$5,000).

Let’s say his current monthly debt obligations include:

Debt Obligation

Amount per month

Home Loan Repayment

S$1,000

Car Loan Repayment

S$500

Credit Card Payment

S$500

Adding everything up, his total debt obligation would be S$2,000 per month.

His current TDSR calculation would then be:

(S$2,000/S$5,000) x 100% = 40%

If he wants to take out a new loan, his new total monthly debt obligation must not exceed 55% TDSR (or S$2,750, as calculated above).

When and Why was the TDSR introduced in Singapore?

In 2013, the Monetary Authority of Singapore (MAS) introduced the TDSR as part of their efforts to strengthen the credit assessment framework for assessing borrowers' eligibility for loan products. The introduction of TDSR was intended to protect both lenders and borrowers from excessive borrowing that could lead to over-indebtedness. The TDSR threshold was 60% when the framework was introduced in 2013, but the government has since tightened it to 55% in December 2021.

What Is Included in The TDSR Calculation?

The following factors are taken into consideration when calculating your TDSR:

  • Monthly Income: This includes your salary and any additional income such as rental income or pension.

  • Total Debt Obligations: This includes the total amount you owe on all existing loans (housing loan, car loan, personal loan). It also accounts for credit card debt and other debts such as student loans or child support payments.

  • Property Value: If you own property, its market value is also taken into consideration.

  • Other Financial Assets: The value of any other assets you own, such as stocks, foreign currency deposits, and bonds can also be taken into account.

How Does TDSR Affect Your Personal Loan Application?

The TDSR is an important factor when lenders consider your loan application. As mentioned before, the TDSR ratio should not exceed 55%. If it does, this means that you may be unable to repay the loan and your application will be rejected. On the other hand, if your TDSR is below 40%, it generally indicates that you are in a good position to take on additional debt.

How Can You Improve Your TDSR To Increase Your Chances of Getting a Personal Loan?

There are various ways to improve your Total Debt Service Ratio (TDSR) and increase your chances of getting approved for a personal loan. These include:

- Decreasing your existing loan obligations by repaying your current loans;

- Reducing your credit card debt;

- Increasing your income (through promotions or taking on a second job); and

- Leveraging existing assets such as property or stocks.

If you take the necessary steps to improve your TDSR, it may increase the chances of your personal loan application being approved.

Applying for Personal Loans in Singapore

Now that you have understood the core principles behind the TDSR framework, you can start making calculations and looking for a personal loan that allows you to stay within the TDSR threshold. Instead of spending entire days or weeks trying to submit multiple applications and compare loan options, you can use a trusted loan comparison platform like Lendela to help you quickly gather pre-approved loan offers from licensed financial institutions in Singapore and compare them all at once. Also, since Lendela only partners with reputed licensed banks and financial institutions in Singapore, you are sure to avoid loan sharks that prey on unsuspecting clients online.

Here are the main steps involved in applying for a loan through Lendela.

  • Visit Lendela to submit your application. This should take you only a short while.

  • The loan application is sent to different banks and financial institutions who review your status and send back pre-approved, tailored offers.

  • You compare your offers and select the preferred option (this is the best point to seek expert help, and Lendela’s Customer Relationship Team will be there for you).

  • Lendela helps you book an appointment so that you can sign the loan agreement with the lender.

  • The loan agreement is finalised and you can start to use the money.

Key Takeaways

To summarise, here is what an average loan borrower needs to know about TDSR in order to improve their chances of a successful loan application:

  • Total Debt Service Ratio (TDSR) is a calculation used by lenders to evaluate applicants' ability to meet their debt obligations.

  • All banks and financial institutions in Singapore must follow the TDSR framework when assessing home loans, car loans, personal loans, credit card balances, and student loans.

  • TDSR can be calculated by dividing a borrower's total debt obligations by their total income.

  • In order to take out a new loan, the borrower's TDSR must not exceed 55% (after adding in the new loan's monthly repayment)