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Loan installments: flat rate vs APR

How personal loan installments are worked out in Saudi Arabia, why the flat rate hides the real cost, and how to compare offers properly.

Updated: 1 min read

Tools for this guide

Two ways to charge profit

  • Flat rate: profit = loan × rate × years, charged on the full amount for the whole term.
  • Reducing balance: profit is charged only on what you still owe, so it falls as you repay.

Worked example: 100,000 SAR over 5 years

5% flat 5% reducing balance
Monthly installment 2,083.33 1,887.12
Total profit 25,000 13,227
True yearly cost (APR) 9.15% 5%

A 5% flat rate costs about as much as 9.15% on a reducing balance, nearly twice what it sounds like.

How to compare offers

  • Ask every lender for the APR; lenders in Saudi Arabia are expected to show it.
  • Compare the total amount you’ll repay, including fees.
  • Check early settlement terms if you might repay sooner.
  • A lower installment over a longer term usually means paying more in total.

Compare offers with the loan calculator, and for cars with a final payment, the car finance calculator.

Questions people ask

What is a flat rate?

Profit charged on the full loan amount for the whole term, even though you repay part of it every month. It makes the rate look lower than the real cost.

What is the APR?

The annual percentage rate: the true yearly cost of the loan, including how quickly you repay it. It lets you compare different offers fairly.

How do I compare two loan offers?

Compare the APR and the total you’ll pay, not the flat rate or the monthly installment alone.

This guide is general information, not legal or tax advice. Check official sources for your own situation.

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