Monthly instalments and total cost, in AED.
Monthly instalment
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Total interest
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Total repaid
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Debt burden ratio
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Worked example
Take an AED 100,000 personal loan at a reducing balance rate of 8% over 48 months, for someone earning AED 20,000 a month. On a reducing rate, interest is charged only on the outstanding balance, so the standard amortisation gives a monthly instalment of about AED 2,441. Across 48 months you repay roughly AED 117,182 in total, of which AED 17,182 is interest. The instalment is about 12% of monthly income, comfortably inside the 50% Central Bank debt burden ratio that lenders apply. A flat rate of 8% on the same loan would cost far more, because flat-rate interest is charged on the full original principal for the whole term rather than the falling balance.
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How it is calculated
A reducing balance loan uses standard amortisation. The annual rate is divided by 12, the term is set in months, and the instalment is the level payment that clears the balance by the end of the term, with interest charged on the falling balance each month. A flat rate works differently: interest equals the original principal times the annual rate times the number of years, then principal plus that interest is split into equal instalments. This is why a flat rate is much dearer than the same headline reducing rate. The tool also checks the instalment against the 50% debt burden ratio, the Central Bank limit on how much of your monthly income can go to debt repayments.