What is a good debt service coverage ratio? A DSCR of 1.25 or higher is generally considered good by lenders — it means the income available is at least 1.25 times the debt payments. A DSCR below 1.0 means income does not cover the debt, while 1.5 and above is seen as strong.
The Debt Service Coverage Ratio (DSCR) measures how comfortably an income stream — from a business or a rental property — covers its loan repayments. Lenders rely on it to judge whether a borrower can service new debt.
DSCR ranges
| DSCR | Rating | What it means |
|---|---|---|
| 1.50 and above | Strong | Comfortable cushion; attractive to lenders. |
| 1.25–1.49 | Good | Meets most lenders' minimum for approval. |
| 1.00–1.24 | Tight | Income barely covers debt; limited margin. |
| Below 1.00 | Negative | Income does not cover the debt payments. |
What affects your DSCR
- Net operating income — the higher the income, the higher the ratio
- Total debt service — larger EMIs lower the DSCR
- Interest rate — higher rates increase debt service
- Loan tenure — longer tenures reduce each payment, lifting DSCR
- Vacancy or downtime — gaps in income pull the ratio down
How to improve it
- Increase net income or reduce operating costs
- Choose a longer tenure to lower each payment
- Make a larger down payment to shrink the loan
- Refinance to a lower rate if one is available
Work out your own numbers — the DSCR Calculator does it instantly, for free, with the formula and a worked example built in.
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