Canadian Money Forum banner

1 - 6 of 6 Posts

·
Registered
Joined
·
2 Posts
Discussion Starter #1
I am considering to apply for a loan and for most articles I've read, this is an important 'index' to qualify for one.

I've looked into my credit report online and found out I'm doing well on my FICO score (~700) so I think the biggest factor for me to qualify would be my TDS ratio.

So I was wondering how do I calculate my TDS ratio if my debts are only credit cards (CC) and a student loan that I haven't even started paying off yet. Is it based on my current CC balance, interest rate, etc.?

Loan: $10,000
Assumed rate*: 10%
Term: 4 years
Monthly payments: $ 258.46 <-- calculated monthly loan repayment

* I looked around and the possible rate is close to 11% for my credit score
 

·
Registered
Joined
·
5,464 Posts
Your debt service ratio is a measure of your capacity to carry debt. It is usually calculated like this:

After-tax monthly income / total monthly required payments on outstanding debt.

Student loans are treated differently than CC debt, and likely would not be added into your current debt service ratio (depending on a series of factors including how soon they will kick in, how much your income is and how large the loans are).

The interest rate on your credit cards is a factor only inasmuch as they affect the monthly required repayment. Usually you are required to pay 3% of the outstanding balance of any card any month.

The quality of your income may also be a factor. Employment income is viewed differently than, for example, a TAship at a university for graduate school.

Hope that helps a little!
 

·
Registered
Joined
·
2 Posts
Discussion Starter #3
Thank you MoneyGal. It helped a lot especially that information regarding student loans being treated differently.
 

·
Registered
Joined
·
44 Posts
Total debt service ratio also includes housing costs. The complete calculation is as follows:

(Monthly payments on loans and debts (including car leases) + monthly rent or mortgage payment + property taxes + condo fees + $85 for heat + new monthly payment applied for) / gross monthly income.

Lenders look for a TDS no greater than 40% - 42%.

Student loans ARE included.
 

·
Registered
Joined
·
5,464 Posts
Sorry Mike; I should have been more clear. I did a quick debt-service ratio, not a total debt service ratio, which of course includes other financial commitments like housing costs, utilities, etc.

My understanding is that student loan debt which is not current (i.e., no payments are now required - all payments are deferred) is not treated the same as current debt. The original poster said no payments are now due on this debt, so I said it would not be treated the same way as current debt.
 
1 - 6 of 6 Posts
Top