What DSCR means
DSCR is net operating income divided by annual loan payments. A ratio of 1.25 means the vehicle earns 25% more than it needs to service the debt.
Below 1.0 the vehicle does not cover its own loan, which most lenders will not accept.
Worked example
£24,000 of income less £8,000 of running costs leaves £16,000 of net income. A £60,000 loan at 7.5% over 5 years costs £14,427.32 a year.
DSCR is 1.11. At a 1.25 target the loan supported would be £53,232.33, so the application is £2,034.15 short of headroom.
Improving the ratio
A larger deposit, a longer term or a lower rate reduces the annual payment and lifts DSCR.
Lenders may also use a stressed rate, so leave margin.
Inputs for the vehicle DSCR calculator
Annual income the vehicle earns
Revenue the vehicle brings in over a year, before loan payments.
Annual running costs
Fuel, insurance, maintenance, tax and other operating costs.
Loan amount
The amount being borrowed for the vehicle.
Interest rate (nominal)
The yearly rate before monthly compounding.
Term
The number of monthly payments.
Target DSCR
The coverage a lender wants, commonly 1.25x.
CALCULATOR QUESTIONS
Dscr calculation for vehicle loan questions
What DSCR do lenders want?
Commonly 1.25x, though some ask for more on older vehicles.
What is a good DSCR here?
In the example 1.11, below the 1.25 target.
How do I improve it?
Increase the deposit, extend the term or reduce the rate to lower the annual payment.
Does DSCR replace affordability checks?
No. Lenders still assess credit history and business performance.