What a flat rate means
With a flat rate, the bank works out its profit on the whole amount for the whole term, even though you repay part of it every month.
Example: you borrow 100,000 for 5 years at a 3% flat rate. Profit = 100,000 × 3% × 5 = 15,000. You repay 115,000 in 60 payments of 1,916.67.
But you do not owe 100,000 for five years. After one year you owe about 80,000, and after four years about 20,000. On average you owe only about half the amount, yet you pay profit on all of it.
What APR means
The APR (annual percentage rate) is the yearly rate on what you actually still owe, including fees. It is the rate that makes offers comparable. For the example above, the APR is about 5.6%, not 3%.
A quick rule: APR ≈ flat rate × 1.8 to 1.9 for loans of three to five years. In Saudi Arabia lenders must show the APR in the contract; elsewhere, ask for it.
Things that raise the true cost
- Admin fees taken at the start (often 1%).
- A final "balloon" payment: lower monthly payments, but you pay profit on the balloon for the whole term and must pay it at the end.
- Insurance built into the payment. Ask whether it is included and what it costs on its own.
- Early settlement fees: in the UAE up to 1% of what is left; in Saudi Arabia up to three months of future profit.
Before you sign
- Ask each bank for the APR, the total amount you will repay and all fees.
- Check that the payment fits: banks in the Gulf limit monthly debts to a share of your salary (a third in Saudi Arabia for salary deductions, half in the UAE).
- Compare offers in our car loan calculator, which shows the APR and the year-by-year cost, or the installment calculator for other purchases.