Quick answer: At a flat rate, profit = amount × rate × years and the installment = (amount + profit) ÷ months; for 50,000 at 5% flat over 5 years that is 1,041.67 a month, an APR of about 9.55%.
How it's calculated
Flat rate: the profit is worked out once on the full amount for the whole term, profit = amount × annual rate × years, and spread evenly over the months. Because you pay profit on money you have already repaid, a flat rate costs much more than the same number quoted as a reducing rate.
Reducing balance: each month's profit is the outstanding balance × (annual rate ÷ 12), and the fixed installment is P × i ÷ (1 − (1 + i)^−n), where P is the amount, i the monthly rate and n the number of months. As the balance falls, more of each installment repays principal.
APR: the calculator finds the yearly rate at which the present value of all your installments, with time counted in years, equals the money you actually receive (the amount, minus the admin fee if you enter one). This follows the method in SAMA's APR rules; with equal monthly periods it is (1 + j)^12 − 1, where j is the monthly rate, so it approximates a bank's figure, whose real payment dates vary. The nominal rate, 12 × j, is shown below it. That is why a reducing loan quoted at 5% shows an APR of 5.12%: the quoted rate is nominal, and the APR includes monthly compounding. The APR is the figure to compare offers with, whatever way they quote the rate.
Rounding: amounts are worked in whole halalas or fils. The regular installment is rounded to 2 decimals and the last installment absorbs the difference, so the installments add up exactly to the total repayment. To compare a cash price with an installment offer, the percentage calculator shows the difference as a percentage, and the Saudi VAT calculator handles VAT on the price.
Worked examples
- 50,000 at 5% flat for 5 years: profit 50,000 × 5% × 5 = 12,500.00; 62,500.00 ÷ 60 = 1,041.67 a month (last 1,041.47); APR 9.55% (nominal 9.15%)
- The same 50,000 at 5% reducing for 60 months: 1,041.67 → 943.56 a month (last 943.67); total profit 6,613.71; APR 5.12% (nominal 5.00%)
- Example 1 with a 500 admin fee: you receive 49,500.00 for the same 60 × 1,041.67 → APR including the fee 10.02% (nominal 9.59%)
Flat rate and APR compared
The APR of a flat rate is close to double the flat rate. Here is the APR for a 100,000 loan repaid monthly, with no fees:
| Flat rate | 1 year | 3 years | 5 years |
|---|---|---|---|
| 2% | 3.73% | 3.89% | 3.88% |
| 3% | 5.63% | 5.83% | 5.79% |
| 4% | 7.55% | 7.77% | 7.68% |
| 5% | 9.49% | 9.72% | 9.55% |
| 6% | 11.46% | 11.66% | 11.40% |
What Murabaha is
Murabaha is a cost-plus sale used in Islamic finance. Instead of lending money at interest, the bank buys the asset (a car, goods, or a commodity it then sells on your behalf for cash) and sells it to you at its cost plus an agreed profit, which you pay in installments. The profit is fixed when you sign, which is why Murabaha offers are usually quoted as a flat annual rate.
For the installment arithmetic, a Murabaha at a flat profit rate works like a flat-rate loan, so this calculator shows the same installment and APR. Whether a product is Shariah-compliant depends on its contract and the bank's Shariah board; this page does not judge that.
APR disclosure in Saudi Arabia
The Saudi Central Bank (SAMA) Rules Governing Calculation of Annual Percentage Rate (31 October 2023) apply to banks and finance companies in retail lending. They define the APR as the discount rate at which the present value of what the borrower pays equals the present value of the finance received, count fees, commissions, administrative fees and insurance in the total cost (but not costs the borrower can avoid, such as penalties for breach), and measure time in years on a 365-day basis. The rules require the APR to be calculated this way wherever it is disclosed, including advertisements and periodic statements.
The APR this calculator shows follows that method with each month counted as 1/12 of a year, so it should be close to the APR a Saudi bank discloses for the same installments. Small differences come from actual payment dates (months of 28 to 31 days) and from fees or insurance we don't know about.
Frequently asked questions
How do I calculate the monthly installment at a flat rate?
Profit = amount × annual rate × years; installment = (amount + profit) ÷ number of months. For 50,000 at 5% over 5 years: 50,000 × 5% × 5 = 12,500, and 62,500 ÷ 60 = 1,041.67.
Why is the APR higher than the flat rate?
A flat rate charges profit on the full amount for the whole term, even though you repay part of it every month. On average you owe only about half the amount, so the true yearly cost on the money you still owe is close to twice the flat rate.
Is a 5% flat rate the same as 5% reducing?
No. On 50,000 over 5 years, 5% flat costs 12,500 in profit (APR 9.55%) and 5% reducing costs 6,613.71 (APR 5.12%). Compare offers by their APR, not the headline rate.
Why does my bank's installment differ from this one?
Banks may add administrative fees, insurance or VAT on fees, start the first installment on a different date, or round differently. Treat this result as an estimate and ask the bank for its disclosure statement with the APR.
Does the admin fee change the installment?
No, in this calculator the fee is paid once at the start, so the installment stays the same. It does raise the APR, because you receive less money for the same payments.
Is the loan amount I enter shared with any bank?
No. We aren't a lender and don't pass anything on. The payment is calculated in your browser, and the amount, rate and term you type never leave your device.