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Whenever you take personal loan in the UAE from a bank or a financial institution, the financial agency levies interest on the borrowed amount. If you are applying for a personal loan in a UAE bank, it might be useful for you to know how personal loan interest rate is calculated.
While taking a personal loan in the UAE, you must be aware of the amount you are expected to return to the bank so that you have a complete estimation of how much a personal loan in Dubai can cost you. This gives you a better grip over your monthly budget and allows you to plan your finances accordingly. Besides, having a fair idea of the interest amount to be paid will determine your Equated Monthly Installment (EMI).
There are three important factors that you need to consider before calculating your loan interest i.e.:
The Principal Amount is the amount that you are willing to borrow from the bank
The rate of interest is the personal loan interest rate in uae the bank levies for borrowing this amount. Usually, the bank will specify the annual rate of interest to you. However, at the time of calculating EMI, the interest is charged monthly.
Since the rate of interest is levied annually, the amount of time you require to return the amount to the bank is crucial to determine the interest. Besides, the interest amount is calculated and charged monthly while calculating your EMI.
The simple formula to calculate the personal loan interest amount on your loan is (R/N)*P where R is the rate of interest, N is the number of installments, and P is the principal amount. Let us say that the amount you borrow from the bank is AED 100,000 and the personal loan interest rate is 4% per annum and you want to pay it over 6 years then the monthly interest on the total amount will be
This will be the interest on your first EMI of an AED 100,000 loan. The total monthly EMI that you will require paying will be AED 1564 where your Principal amount will be AED 1231 in the first month.
Since the interest rate is applied to the pending principal amount, the personal loan interest will reduce with every EMI payment.
To avoid complex calculations and find easy interests and EMI on your loan in the UAE, you can use the personal loan EMI calculator at policybazaar.ae