What is debt burden ratio and how to calculate it ?

Debt Burden Ratio commonly known as DBR is a term which is massively used in banking industry. Bangladesh Bank has also instructed all the commercial banks to maintain specific DBR for consumer financing. But, not only the customers but also the bankers sometimes fall into trouble understanding this basic concept of lending. This post will help you to understand the basic principle of Debt Burden Ratio and to calculate your own DBR. So that you do not fall into the spiral of debt.

What is Debt Burden Ratio ?
Debt Burden Ratio is a mathematical ratio which banks consider while deciding an applicant whether is eligible for loan or not. Though all the banks has specific rule of lending but there are some invariable factors which all the banks follows e.g. Debt Burden Ratio.

How to calculate Debt Burden Ratio ?
The formula for calculating debt burden ratio is
Debt Burden Ratio= Total Debts/ Total Assets
To understand this consider this example. Let’s say you have a monthly income of Tk. 20000 and you have EMIs of Tk. 2000, Personal Loan installment of Tk. 3000 and Rental Expenditure Tk. 5000. So, your DBR will be
DBR= 10000/20000 X 100= 50%
You can also use the online calculator of DBR.
As per Bangladesh Bank’s instruction DBR must be less then 33%. The lesser the DBR rate the higher the possibility your application will be considered. To have a lesser DBR rate you may consider the following tips:-
  • Pay your monthly interest of Credit cards on time.
  • Increase your income.
  • Pay off your existing loans as soon as possible.
Debt Burden Ratio not only helps the banks to control over the lending but also ensures that the lenders do not go for lending beyond their capacity where they cannot pay off their debts. Remember your DBR is the reflection of your percentage of debt.

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