How is the payment calculated?
In the usual car finance offers (a “flat” rate, or murabaha), profit = amount financed × rate × years, spread over the payments, and any balloon is deferred to the end:
Payment = (amount financed − balloon + profit + insurance) ÷ number of months
Example: a 100,000 SAR car with a balloon
Price 100,000, 10% down (10,000), 20% balloon (20,000), 60 months at a 4% flat rate: 90,000 financed, profit 90,000 × 4% × 5 = 18,000, and the payment = (90,000 − 20,000 + 18,000) ÷ 60 = 1,466.67 SAR. The total is 118,000, 18% more than cash. That 4% flat rate equals about 6.27% on a reducing balance.
Example: an EGP 1 million car in Egypt
30% down (300,000) and the remaining 700,000 over 5 years at 12% flat: profit 420,000, payment EGP 18,666.67, total 1,420,000 — 42% more than cash. That 12% flat rate equals about 20.31% on a reducing balance.
Why the true rate matters most
A flat rate is charged on the full amount financed for the whole term, even though you repay part of it every month, so the real rate on what you still owe is much higher. Compare offers by the true rate, not the advertised one. And with a balloon, the monthly payment looks small, but the balloon is due in one go at the end.
Frequently Asked Questions
What difference does a balloon make?
It lowers the monthly payment because part of the price is deferred to the end — but it is a large sum you must pay, refinance with new profit, or settle by returning the car, depending on the contract. Profit is usually charged on the whole amount financed, balloon included.
Is insurance included in the true rate?
No. Insurance is the cost of cover, not interest, so the calculator adds it to the payment and the total, but works out the true rate on the finance only, so you can compare banks fairly.
Should I pay cash or finance?
If you have the cash, compare the true rate with what your money could earn in a deposit. For any other installment offer, use the cash or installments calculator.
Is a personal loan better than car finance?
It depends on each offer. Work out the loan with the loan calculator and compare the true rate and the total in both cases.