Flat vs reducing: an example
AED 100,000 over 4 years at a 3.99% flat rate:
- Interest = 100,000 × 3.99% × 4 = AED 15,960
- Monthly instalment = (100,000 + 15,960) ÷ 48 = AED 2,415.83
- The same instalment on a reducing balance corresponds to about 7.46% per year
So a "3.99% flat" loan should be compared with other loans as a 7.46% reducing-rate loan.
Formulas
- Flat: instalment = (loan + loan × flat rate × years) ÷ months
- Reducing: instalment = L × r × (1 + r)n ÷ ((1 + r)n − 1), r = annual rate ÷ 12
Before you borrow
- Compare the reducing rate and the total cost (interest + fees + insurance), not the instalment alone.
- Check if salary transfer is required and what happens if you change jobs.
- Ask about life insurance charges, which some banks add monthly.
- Borrow only what you can repay comfortably; missed payments affect your Al Etihad Credit Bureau score.
Buying a home instead? Use the UAE mortgage calculator.
Frequently asked questions
What is the difference between a flat rate and a reducing rate?
A flat rate charges interest on the original loan amount for the whole term, even though you repay it monthly. A reducing (declining-balance) rate charges interest only on what you still owe. The same number as a flat rate is roughly 1.8–1.9 times more expensive as a reducing rate.
Do UAE banks have to show the reducing rate?
Under Central Bank of the UAE consumer protection rules, banks must disclose the reducing-balance rate alongside any flat rate in their key facts statement. Always compare loans using the reducing rate.
How much can I borrow as a personal loan in the UAE?
Central Bank rules cap personal loans at 20 times your monthly salary, with a maximum term of 48 months, and total debt repayments at 50% of your income.
Is there a fee for paying off early?
Early settlement fees for personal loans are capped at 1% of the outstanding balance, up to AED 10,000.
Last reviewed: October 2026