How to Calculate a Loan in Saudi Arabia: PMT Formula with Examples

If you are applying for a personal loan, a mortgage, or car financing in Saudi Arabia, the bank will tell you your monthly installment before you sign — but it is worth understanding how that number is calculated. Saudi banks use the reducing-balance (declining-balance) method, and the math behind it is the same PMT formula used worldwide for installment loans.

The PMT formula is: Monthly Payment = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the principal (loan amount in SAR), r is the monthly interest rate (annual rate ÷ 12 ÷ 100), and n is the total number of monthly payments.

Let us work through a real example: 100,000 SAR loan, 5% annual rate, 5 years. The monthly rate is 5 ÷ 12 ÷ 100 = 0.004167. The number of payments is 5 × 12 = 60. Plugging in: 100,000 × 0.004167 × (1.004167)⁶⁰ ÷ ((1.004167)⁶⁰ − 1). The result is 1,887 SAR per month. Total paid over 5 years is 1,887 × 60 = 113,220 SAR, so total interest is 13,220 SAR.

Saudi banks price personal loans in a typical range: 3%–9% APR. Mortgages are cheaper at 3%–5% (with longer tenures, often 15–25 years). Car financing sits at 3%–7% for new cars, 6%–10% for used. Credit cards carry much higher rates, usually 36% APR or more, so they are not realistic for installment-style calculations.

Three of the largest Saudi banks — Al Rajhi (الراجحي), Saudi National Bank / SNB (الأهلي السعودي), and Riyad Bank (بنك الرياض) — all use this same PMT formula. The same applies to Alinma (الإنماء), Bank AlBilad (البلاد), and Bank Albilad merged entity SABB. You will get the same monthly installment number whether you calculate it yourself or whether the bank tells you — provided you use the same rate and tenure.

A critical rule: the installment should not exceed 33%–45% of your net monthly salary, depending on the bank. For a 1,500 SAR monthly installment, you typically need a net salary of 3,500–4,500 SAR. Saudi banks also check your existing obligations (other loans, credit card balances) before approving.

The Saudi Labor Law caps a worker exposure: an installment-to-salary ratio above 50% will likely be rejected. Aim for 33% or lower to maximize your approval chances. Use the Saudi Salary Calculator to find your net pay (after GOSI), and the Loan Calculator to see what monthly installment fits your budget.

When comparing offers, look at three numbers: monthly installment, total interest over the life of the loan, and the total cost (principal + interest). The bank offering the lowest monthly installment is not always the cheapest if its tenure is longer — total interest can be significantly higher. For the example above at 5% for 5 years, total interest is 13,220 SAR. If the same loan is stretched to 7 years, monthly drops to ~1,420 SAR but total interest jumps to ~19,300 SAR.

There is a related consideration: end-of-service accrual. Saudi employers set aside a portion of your basic salary each month toward your eventual end-of-service award (مكافأة نهاية الخدمة), governed by Article 84 of the Labor Law. Some workers reduce their loan principal using accrued EOS at the end of their contract — the EOS Calculator shows what that award would be.

Fixed-rate vs variable-rate: Saudi personal loans are almost always fixed-rate. The rate is locked at signing and does not change over the loan life. SAMA (البنك المركزي السعودي) regulates maximum rates, and consumer protection rules require the bank to disclose the total cost of credit upfront in the contract.

Common mistakes to avoid: confusing the annual percentage rate (APR) with the monthly rate (divide by 12), not accounting for the down payment when comparing offers, ignoring processing fees (usually 1%–2% of the loan amount, sometimes waived), and not reading the early settlement clause (some banks charge a small fee if you pay off the loan early).

To calculate your own loan in seconds, use the free Loan Calculator on this site. Enter the principal, the rate the bank quoted, and the tenure, and the calculator returns the monthly installment, total interest, total cost, and the first 12 months of the amortization schedule. The result is bookmarkable and shareable.

Frequently asked: yes, you can settle the loan early (most banks allow this with no fee or a small one). Yes, you can refinance at another bank if a better rate is offered. Yes, the PMT formula is the same for personal, mortgage, and car loans — only the rate and tenure change. Use the Loan Calculator above to model your specific case.