Flat rate vs reducing rate
A flat rate charges interest on the full original amount for the whole term, even as you repay. A reducing rate charges interest only on what you still owe. The same number means very different costs:
Flat: EMI = (loan + loan × rate × years) ÷ months Reducing: EMI = loan × r ÷ (1 − (1 + r)^−months), r = rate ÷ 12UAE banks must disclose the effective annual rate. Compare offers on the reducing rate, which this calculator shows for any flat quote.
Central Bank limits
- Maximum personal loan: 20 times your monthly salary or income
- Maximum term: 48 months
- All monthly debt repayments together: at most 50% of gross salary
- Early settlement fee: capped at 1% of the outstanding balance, maximum AED 10,000
Questions
Is a 3% flat rate cheap?
Not as cheap as it sounds. Over 4 years a 3% flat rate equals about 5.7% on a reducing balance, because you keep paying interest on money you have already repaid.
How much can I borrow on my salary?
Up to 20 times your monthly salary, as long as total monthly debt repayments stay within 50% of your salary.
Sources: CBUAE Regulation 29/2011: bank loans to individuals