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How to Calculate Monthly Loan Installment - Formula, Examples & Free Tool
How to Calculate Monthly Loan Installment - Formula, Examples & Free Tool
Before signing any loan agreement, you should know exactly what you'll pay each month and how much interest you'll rack up over the term. Let's break down the math step by step, then show you a free calculator that does it in one click.
The Standard Amortization Formula
The classic formula for a fixed-rate installment loan:
M = P × [ r(1+r)^n ] / [ (1+r)^n − 1 ]
Where:
- M = monthly payment
- P = principal (loan amount)
- r = monthly interest rate = annual rate / 12
- n = number of monthly payments
Worked Example: 100,000 SAR Personal Loan
Assume:
- Loan amount: 100,000 SAR
- Annual rate: 6.5%
- Term: 5 years (60 months)
Step 1: r = 6.5% / 12 = 0.541% per month = 0.00541
Step 2: n = 60
Step 3: M = 100,000 × [0.00541 × (1.00541)^60] / [(1.00541)^60 − 1]
Step 4: M ≈ 1,956 SAR/month
Total paid: 60 × 1,956 = 117,360 SAR — meaning 17,360 SAR in interest.
Loan Types in Saudi Arabia
| Type | Typical rate | Typical term |
|---|---|---|
| Personal loan | 5-8% | 1-5 years |
| Auto financing | 3-6% | 3-5 years |
| Mortgage (real estate) | 4-6% | 10-25 years |
| SME business loan | 6-12% | 1-7 years |
Reducing Your Total Interest
- Choose the shortest term you can afford — long terms explode total interest.
- Make extra principal payments when bonuses come in.
- Refinance if rates drop significantly.
- Compare offers from at least 3 banks before signing.
Try the Free Calculator
Our free loan calculator not only computes the monthly payment but also shows the full month-by-month amortization schedule.
Common Mistakes
Confusing annual and monthly rates
Always convert. 6% annual = 0.5% monthly.
Forgetting insurance and processing fees
Ask for the APR (Annual Percentage Rate) which includes all fees.
FAQ
Does early repayment save interest?
Yes, but some Saudi banks charge an early settlement fee (usually 1% of remaining balance). Always check first.
What's Murabaha financing?
An Islamic-compliant financing where the bank buys the asset and resells it to you at a markup — mathematically similar to interest but structured differently.
Track Business Loans Automatically
Daqiq automates loan liability tracking, monthly installment recording, and interest journal entries so your books stay clean.