Term cost vs APR: the two rates in a Saudi finance offer
Updated
What does a finance contract summary include?
The lender must give you a summary of the finance contract in clear, short language with the basic facts, including the total cost of finance, and must document that you received it. The contract itself must state at least 21 items, of which these are the ones to check against the offer.
| Item | Why it matters |
|---|---|
| Type of finance, amount and term | What you get and for how long |
| Term cost and how it is calculated | The yearly profit rate on the reducing balance, and any reference rate if it can change |
| APR | The yearly cost of everything you pay — the number to compare offers by |
| Total cost of finance and total amount payable | With the assumptions used to work them out |
| Instalments: amount, number and due dates | Check the first due date |
| All fees, commissions and admin costs | The admin fee is capped by SAMA |
| Effect of late payment | What happens if you miss an instalment |
| Collateral and required insurance | |
| Withdrawal right, early repayment and termination | Including how the lender's compensation for early repayment is worked out |
| Your consent to the credit bureau |
Official rule: The lender must give you a summary (synopsis) of every finance contract in clear, short language, with the basic facts including the total cost of finance, and must document that you received it. (source, checked 2026-10-19)
Not a valid document. Estimate for information only — not financial advice, not an offer of credit and not a bank document. Errors are possible. Only your bank's or finance company's official offer letter, contract and statements are binding.
In Saudi Arabia a finance offer has two rates: the term cost (profit) rate the lender charges, and the APR — the yearly cost of everything you pay. Only the APR may appear in adverts, and it is the number to compare offers on.
Example: SAR 100,000 over 48 months at a 6% term cost is an APR of 6.17% before any fee, and 6.48% with the admin fee at the SAMA cap (SAR 500 + VAT).
The term cost: what the lender charges
Most Saudi consumer finance is tamweel rather than a loan, so the lender's charge is called the term cost, not interest. SAMA requires it to be spread on the reducing balance and fixed for the whole term of personal and car finance. It is a yearly rate, charged month by month on what you still owe.
The APR: what it really costs you
SAMA's APR rules define the APR as the yearly rate at which everything you pay equals what you receive, with time counted in years and parts of a year over a 365-day year. Three things follow:
- Every unavoidable fee counts — the admin fee and anything else you must pay to get the finance — and the VAT on those fees counts too.
- Monthly payments compound. Because time is counted in years, a term cost charged monthly shows as a slightly higher yearly figure: 6% becomes 6.17% even with no fee.
- Adverts show only the APR. An advert may not show the term cost or any other rate on its own.
Why the two numbers differ in the example
6% term cost on the reducing balance gives an instalment of SAR 2,348.50. Counted SAMA's way the same payments are 6.17% a year. The admin fee at the cap, SAR 500 plus SAR 75 VAT, means you receive less than you finance, which lifts the APR to 6.48%.
Check your offer
Enter the offer in the personal finance calculator or the car finance calculator with the APR it states — the calculator works out the APR by SAMA's method and tells you whether they match. Dealer offers with nothing down, 0% or a final payment: zero down, 0% or cash discount, lease to own.
Questions people ask
What is the difference between the term cost and the APR?
In Saudi Arabia, the term cost is the lender's yearly profit rate on the reducing balance. The APR is the yearly cost of everything you pay — term cost plus every unavoidable fee and its VAT — counted in years.
Why is the APR higher than the term cost even with no fees?
SAMA's APR counts time in years, so a term cost charged monthly compounds: 6% a year paid monthly is about 6.17% APR.
Which rate may an advert show?
Only the APR in Saudi Arabia. Adverts may not show the term cost or other rates on their own.
What does 7% APR mean?
In Saudi Arabia, a 7% APR means everything you pay — the term cost plus every fee you cannot avoid and its VAT — costs 7% a year of the money you receive, with time counted in years. Because SAMA's APR compounds monthly payments, a 7% APR with no fees is a term cost of about 6.78% a year. Compare offers by the APR, not the term cost.