When applying for a mortgage or a personal loan, one basic criteria point banks will check off the list is the calculation of your debt-to-burden ratio (DBR). It is defined as the % of your income that is currently being used for repayment of all your debt Globally, it’s used by banks and lenders as a standard measure to filter applications according to customers’ ability to repay based on their current income and debts.

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What is the law?

The UAE Central Bank regulation states that the maximum DBR ratio for anyone in the country cannot exceed more than 50%.  That means if you earn AED 10,000 a month, you cannot be repaying more than AED 5,000 in debt monthly repayments.  This ensures that residents of the UAE are not overburdened by the amount of debt they have to pay back every month, and therefore protecting them from getting into a spiral of debt.

How will my DBR impact me?

The DBR ratio can directly impact your ability to receive a loan or mortgage, as well as the amount of financing you can be approved for. Every time you apply for finance, banks will request you to provide all the other financing repayments you are currently making.  On top of that, they will ask you the credit limit on all your credit cards.  This will allow them to calculate your DBR and decide on how much financing, if at all, they can provide.

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Prior to November 2014, banks were reliant on the information you would be providing them.  However, since the formation of the UAE’s Al Etihad Credit Bureau, banks can now access all this information from the credit reports issued by the authority. These reports include existing debts such as credit cards (used and not used), personal, auto and home loans for the last two years (2013 onwards). They also include records of any missed payments or bounced cheques.

Banks in the UAE are required to share all of their data relating to customers’ payment history over this time period. With an integrated system now up and running, one of the first things lenders will do when they receive a loan application is access your credit history details and determine the DBR before it makes a decision on the loan itself as well as the rate.  Remember however, they need your written consent to go ahead and check your details.  It is generally in the loan application form.

For those unsure of where they stand in terms of their credit rating, it would be a wise move to purchase a copy of their credit report directly from one of the credit bureau’s customer centres. You can get these at a cost of AED 110, and it usually takes only 10 minutes to be issued.

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How to calculate my DBR?

There is a simple formula that you can use to get a general idea of what your DBR might look like to banks. To start off, document all of your monthly recurring debts (the monthly payments you make on loans or other long-term financial commitments). Combine these regular payments and divide the sum by your total gross monthly income to get your DBR. For example, here’s how you can calculate your DBR:

Debt Burden Ratio = (loan repayment, mortgage repayment, car loan repayment + 5% of total credit card limits) / Monthly income

Basically, you add up all your fixed debt repayment and 5% of all the credit card limits you have, that means if you have 2 credit cards with AED 15,000 each, the amount to add on to your repayments is 5% x (15,000 +15,000)