Personal loan

A personal loan is a sum of money you borrow based on your application, which you commit to repay over a set period with agreed interest. Unlike purpose-specific loans (a car loan or mortgageTermMortgage×الرهن العقاريA loan secured by property, where the lender holds a claim on the house until the debt is repaid.Open the term), you are not required to use the money for any particular purpose, and it is not secured against a specific asset.

A personal loan is sold to you as a monthly payment, and the monthly payment is the one number that does not tell you what the loan costs. Stretch the same borrowed amount from three years to five and the installment falls by roughly a third while the total interest you pay rises by well over half. Both facts sit in the same contract, and only one of them is on the poster.

The second thing to look for is how the rate is calculated. A flat rate charges interest on the full amount you borrowed for the whole term, even though you owe less every month as you repay. A reducing-balance rate charges only on what is still outstanding. A flat rate works out at close to double the equivalent reducing-balance rate over a few years — the same headline number, a very different cost. If the paperwork quotes a flat rate, ask for the annual percentage rateTermAPR×معدل النسبة السنويThe yearly cost of borrowing stated on one basis, so that two offers quoted differently can be set beside each other.Open the term before you compare the offer with anything else.

And the loan is not the whole of what you sign. Arrangement fees and mandatory life coverTermLife insurance×التأمين على الحياةA contract where you pay regular premiums and the insurer pays a sum to your named beneficiaries if you die during the coverage period.Open the term are usually added to the amount borrowed rather than paid up front, which means you pay interest on them too.

• Ask for the APR and the total amount repayable in cash. Those two numbers make offers comparable; the installment does not.
• Early repayment may carry a penalty at some institutions and be free at others; check the terms before you sign, not when you have the money.
• Shariah-compliant versions (murabaha) achieve the same result through a profit margin instead of interest, but the economic cost calculation remains identical.
• Repayment capacity is usually measured as a shareTermStock×السهمA share of ownership in a company, bought and sold on a stock exchange, that may pay dividends and rise or fall in value.Open the term of your monthly income, and a lender that approves you at the very top of its limit has not thereby judged that you can afford it.