The instalment is the number people compare. The total interest is the number that decides whether the deal was good.
Reviewed by Shaz SafderLast verified 2026-08-25✓ Formula checked
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Results are estimates for general guidance. Figures shown are not professional advice.
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What actually moves the number
Three levers change your instalment: the amount borrowed, the rate and the term. Only two of them change what you pay in total. Extending the term always lowers the monthly figure and always increases total interest — sometimes by more than people expect.
On AED 72,000 at 4.5%, a three-year term costs about AED 5,100 in total interest. Stretching to five years lowers the instalment by roughly AED 800 a month but raises total interest to about AED 8,600.
The value of paying extra
Because interest accrues on the outstanding balance, any additional payment reduces every future interest charge. Enter an extra monthly amount above to see how many months it removes and how much interest it saves. Confirm with your bank that additional payments reduce principal rather than being held as advance instalments.
Flat versus reducing rates
A flat rate charges interest on the original loan amount for the entire term, regardless of how much you have repaid. A reducing rate charges only on what remains outstanding. Dealers often quote flat rates because the headline number is lower. To compare fairly, ask for the annual percentage rate.
Frequently asked questions
How is an auto loan monthly payment calculated?
Using the standard amortisation formula: the payment is principal times the monthly rate, divided by one minus (one plus the monthly rate) raised to the negative number of months.
Does a longer loan term cost more?
Yes. It lowers the monthly instalment but increases total interest, because the outstanding balance stays higher for longer.
Does paying extra each month help?
Substantially. Extra payments reduce the principal immediately, which lowers every subsequent interest charge. Confirm your bank applies extra payments to principal rather than holding them as advance instalments.
What is the difference between flat and reducing rate?
A flat rate charges interest on the original amount throughout the term. A reducing rate charges only on the outstanding balance. A flat rate is roughly 1.8 times its equivalent reducing rate over five years.
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