Just between April and June this year, banks are lending out SR 321 billion to consumers. This has been a 22 percent increase in loans disbursed compared to the same period last year.
There maybe a cause of concern as currently there is an average of 60,000 Saudis who are struggling to pay off their loans. As a result, banks have been putting in place stringent procedures to protect themselves and lowered incentive for people borrowing money to buy consumer goods such as luxury cars or holidays.
Another way banks protect their interest is through early settlement fees. When paying off a loan early, many of us are thinking about getting rid of our debt, but we forget to notice the hidden charges behind.
Watch out for early settlement fees
The early settlement fee is often calculated as a percentage of the outstanding balance during the time you wish to clear out your loan. Most banks make their profit through interest when they lend money. However, repaying your loan early means paying less profit to your bank as you would have for the full term of the loan. Therefore, early settlement fees ensure that banks still benefit from lending you money even if you decide to pay it off early.
Banks also vary on their rules surrounding early settlement fees. A few banks in Saudi Arabia have a100% early settlement fee while others banks have a 35% fee on the outstanding profit due for the full loan period. You will also find banks with variable fees, meaning that the fee would be a calculated based on the remaining number of years and could be calculated only at the time you wish to settle your loan.
Therefore, if for whatever reason, you have spare funds, repaying off our loan early may not be the best option considering the early settlement fees you may have to pay
There are banks in Saudi Arabia which offer a 0% early settlement fee. However, with such loans, the maximum finance amount may not be what you are looking for.
Make sure you compare the loans in the market
So if you are looking to take a personal loan in Saudi Arabia, make sure you are able to afford it and are borrowing for the right reasons. Compare all loans in the market and remember that banks in Saudi Arabia will freeze your account and stop all transactions if you default on a due payment.