Monthly installment
In one sentenceThe amount the financed party pays the financier every month, made up of part of the financing principal and part of its cost, until the end of the contract term.
Simply put
In flat-rate financing, the installment is calculated simply: the financing principal plus its full cost divided by the number of months. In financing on a declining balance, the installment stays fixed but the principal portion in it grows month after month.
Do not judge financing by the installment alone: a low installment may come from a longer term and a higher total cost.
Worked example
A bakery owner bought equipment for 100,000 SAR, paid 20,000 SAR as a down payment, and financed the rest at a flat rate of 4% a year for 5 years.
Financing amount100,000 − 20,000 = 80,000 SAR
Financing cost80,000 × 4% × 5 = 16,000 SAR
Number of months5 × 12 = 60 months
Monthly installment = (80,000 + 16,000) ÷ 601,600 SAR
Formula: Financing amount × (1 + flat rate × number of years) ÷ number of months