The application of the debt service ratio (DSR) regulation to insurance policy loans and deposit-collateral loans is expected to limit borrowing options for low-income individuals.

According to the financial sector on Wednesday, inquiries about insurance policy loans and deposit-collateral loans have increased following the new loan restrictions announced on June 27.

However, with the implementation of Phase 3 Stress DSR on July 1, it has become more difficult to utilize these loans as flexibly as before.

The DSR limits an individual’s annual principal and interest payments of 40 percent of his or her annual income.

With the recent rollout of Phase 3 Stress DSR, the scope of loans subject to this regulation has expanded –now including insurance and deposit-collateral loans.

Previously, these were excluded from DSR calculations as they were seen as borrowing against one’s own deposited funds – a consideration based on public sentiment.

Starting this month, they are included in the DSR scope.

The way DSR applies to deposit and insurance-collateral loans varies depending on the timing of the loan.

If the loan has already been taken out, its principal and interest payments are counted in the DSR.

If the borrower’s existing loans – including deposit or insurance-collateral loans – already reach the 40 percent DSR carp, no additional loans can be issued.

However, if a borrower newly uses a savings or insurance policy as collateral after the DSR limit has been reached, those new collateral-backed loans are not included in the DSR calculation.

“When calculating the DSR for other loans, principal and interest payments are reflected,” said a financial official. “However, in practice, there seems to be some confusion at financial institutions about how exactly DSR is applied to these two types of loans.”

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