How to use the calculator
- Choose the type of loan. Each has its own line in the Central Bank's fee table.
- Enter the balance still owed, the reducing (effective) rate and the number of instalments left. Lenders must disclose the effective annual rate, so ask for it if you only have a flat rate.
- Choose whether you settle in full or in part. For a part payment, enter the amount and whether the lender keeps your instalment or your end date.
The fee caps
The caps are maximums. The Central Bank says it supervises lenders so that they do not automatically charge the maximum where their actual costs may be lower, so your fee can be smaller.
| Loan | Settled in full | Settled in part |
|---|---|---|
| Personal loan | 1%, at most AED 10,000 | 1%, at most AED 10,000 |
| Car loan | 1% of the outstanding amount | No separate line |
| Home loan | 1% of the outstanding balance, at most AED 10,000 | 1% of the outstanding balance, at most AED 10,000 |
Source: CBUAE Regulation No. 29/2011 Regarding Bank Loans & Other Services Offered to Individual Customers, Appendix No. (2): Maximum Limits for Fees and Commissions, Central Bank of the UAE. Checked .
For personal loans the table does not say what the 1% is applied to. The calculator applies it to the outstanding balance, as the home loan rows do, and for a part payment also shows the fee on the amount you pay early. For a part payment on a car loan the table has no line of its own, so the calculator uses the early settlement line. Paying a single car loan instalment in advance has its own cap of 1% of the instalment.
If you settle by moving the loan to another bank or finance company, the fee is capped for every type of loan:
Moving a loan to another lender
1% or AED 10,000
A borrower may move a loan or financing to another bank or finance company in the UAE on paying an early-payment fee of no more than 1% of the outstanding balance or AED 10,000, whichever is less.
- Applies to
- Banks and finance companies licensed by the CBUAE (conventional and Islamic), lending to individuals
- Source
- CBUAE Regulation No. 29/2011 Regarding Bank Loans & Other Services Offered to Individual Customers, Article (20) Currently Outstanding Loans, Central Bank of the UAE
- Checked
All the caps are before VAT, so VAT comes on top of the fee; the calculator adds it at the standard rate of 5%.
Islamic banks and windows have one more rule, on top of the same caps:
Islamic finance
Actual costs only
Islamic financial institutions may charge early settlement fees only for the actual costs caused by the early settlement, in line with the Higher Shari'ah Authority resolution No. 76/3/2019, and must follow the Central Bank's early settlement rules.
- Applies to
- Islamic banks, Islamic windows and Islamic finance companies
- Source
- CBUAE Consumer Protection Standards (Notice 1158/2021), Article 11: Shari'ah Compliance for Financial Services, Central Bank of the UAE
- Checked
How the saving is worked out
The calculator treats the loan as a reducing-balance loan and works from an instalment date:
Instalment A = B × i ÷ (1 − (1 + i)−n)
Interest still to pay = n × A − B
Fee = 1% × B, capped; VAT = 5% × fee
Saved after the fee = interest no longer paid − fee − VAT
B is the balance, i the annual rate divided by 12 and n the instalments left. After a part payment the calculator works the loan again on the smaller balance: over the same months with a lower instalment, or at the same instalment until the smaller balance is repaid. Interest on the remaining principal is what the Central Bank requires:
Interest after early settlement
No compounding
Lenders may not charge interest or profit on accrued interest on any consumer credit product, and may not charge future unearned interest after a loan is fully settled early; after a partial early settlement, interest must be adjusted to the remaining principal.
- Applies to
- CBUAE-licensed financial institutions, consumer credit products
- Source
- CBUAE Consumer Protection Standards (Notice 1158/2021), Article 7: Responsible Financing Practice, Central Bank of the UAE
- Checked
Worked example
Worked example
Personal loan: AED 60,000 left at 6% with 24 instalments to go
The balance and the rate are illustrations. The loan is settled just after an instalment.
- Instalment: AED 2,659.24 a month, so the interest still to pay is 24 × AED 2,659.24 − AED 60,000 = AED 3,821.68.
- Fee: 1% × AED 60,000 = AED 600.00, below the AED 10,000 ceiling. VAT: AED 30.00.
- Settling in full means paying AED 60,630.00 now.
- Saved after the fee and VAT: AED 3,821.68 − AED 630.00 = AED 3,191.68.
Settling this loan in full saves about AED 3,192 after the capped fee and VAT.
Paying AED 20,000 early instead, with the same fee, lowers the instalment to AED 1,772.82 and saves AED 1,273.89 of interest if the end date stays the same. If the instalment stays the same, the loan ends 8 months sooner and saves AED 2,132.22.
What the result leaves out
- Days since your last instalment. Settling between instalments adds interest for those days. Lenders count actual days, so their figure will differ a little.
- Break costs on fixed-rate home loans. The mortgage rules also refer to the lender's actual cost of breaking a fixed-rate loan. Ask the lender in writing what it would charge during a fixed-rate period.
- Flat-rate quotes. Enter the effective (reducing) rate. A bank that advertises a flat rate must show the effective rate next to it.
- Other charges. Letters, insurance refunds and any amounts overdue are not included.
Note
Ask for a written settlement figure before you pay. The steps for each loan are in settling a personal loan early and settling a car loan early, and settling before leaving the country in leaving the UAE with debt. To convert a flat rate first, use the flat to reducing rate converter.