Quick answer: A 50,000 personal loan at 6% over 48 months costs 1,174.25 a month and 6,364.07 in interest; with a 1% fee (500) the APR is 6.52%.
How it's calculated
Payment: M = P·r ÷ (1 − (1 + r)^−n), with P the loan, r the annual rate ÷ 12 and n the months. Interest is charged on the falling balance (a reducing rate).
APR: the fee is paid at the start, so you receive P − fee but repay the full loan. The APR is the annual rate that makes the payments worth exactly what you received, found numerically as in US Regulation Z. In Saudi Arabia, SAMA sets a maximum admin fee for consumer finance in its Fees Guide for Financial Institutions' Services; ask your bank for the fee it will charge before you sign.
Many Gulf banks quote personal finance and Murabaha at a flat rate. Use the loan and Murabaha calculator for flat quotes; a flat rate costs much more than the same reducing rate.
Worked examples
- 50,000 at 6%, 48 months, 1% fee: M = 1,174.25, APR 6.52%
- Same loan over 60 months: M = 966.64, interest 7,998.40, APR 6.42%
Frequently asked questions
Why is the APR higher than the rate?
Because the fee reduces the money you actually get while the payments stay the same. The shorter the term, the bigger the difference.
Can I settle early?
Usually yes. Early settlement removes future interest, but some lenders charge a fee. In Saudi Arabia the lender may ask for the remaining principal plus at most the next three months' profit. Ask for a settlement letter.
How much can I borrow?
Lenders limit payments to a share of your salary: one third in Saudi Arabia for consumer finance, and total debt payments up to 50% in the UAE. Check with the debt-to-income calculator.
What is the difference between a reducing and a flat rate?
A reducing rate charges interest only on what you still owe, while a flat rate keeps charging on the original amount. The same number costs much more as a flat rate.
Should I borrow for longer to get a lower payment?
Only if you need to. A longer term raises the total interest, so pick the shortest term with a payment you can reliably manage.
Does it work for Islamic personal finance?
Yes. Enter the profit rate as the annual rate, if it is quoted on a reducing basis. Ask the bank for the APR to compare offers.