Chapter III: APR Calculation Requirements
Article 6: APR Calculation Method
The APR should be calculated based on the net present value method using the following formula:
Where:
- m is the last payment of the amount of finance to be received by the borrower. - d is the payment to be received by the borrower from the amount of finance. - Cd is the payment value of (d) to be received by the borrower from the amount of finance. - Sd is the period between the date on which the amount of finance or the first payment is available to the borrower and the date of payment (d), calculated in years and parts of the year, and so that this period of first payment received by the borrower from the amount of finance is zero (s1=0) - n is the last payment payable by the borrower. - p is the payment payable by the borrower. - Bp is the payment value (p) payable by the borrower - Tp the period between the date on which the amount of finance or the first payment is available to the borrower and the date of the payment (p) to be received from the borrower, calculated in years and parts of the year. - X is the Annual Percentage Rate. Article 7: Cost of Finance
1. For calculating the APR, finance providers shall specify the total amount payable by the borrower.
2. Finance providers shall include the cost elements in the total cost of finance as specified below:
a. All types of costs that the borrower has to pay in order to access the credit.
b. All costs shall be accounted for regardless of whether they are payable to the finance provider or a third party or payable directly or indirectly by the borrower or whether they give access to financial or non-financial services.
c. Term cost, commissions arising from the credit agreement, credit brokerage fees payable by the borrower, administrative fees / or loan processing fee, insurance related costs, valuation costs, cost of ancillary services, and taxes including VAT, etc.
d. Cost of ancillary services or supplementary services to the financing agreement, shall be included in the total cost of finance where the ancillary service is mandatory to obtain the finance or to obtain the finance on the terms and conditions marketed by the finance provider.
Article 8: Costs Excluded from APR Calculations
The total cost of finance shall not include:
a. Any amount charged in lieu of early repayment or settlement and changes in the terms and conditions of the financing agreement. b. Fees and charges incurred as a result of failure to comply with the terms of the agreement i.e., late payment charges in the form of penalties, charges for collection, etc. c. Other costs not paid in connection with the financing agreement (e.g. vehicle registration fees). Article 9: General Requirements
Finance providers must consider the following while calculating the APR:
- The periods between the date on which the amount of finance or the first payment is available to the borrower and the date of each payment received or payable by the borrower shall be calculated on the basis of 365 days a year.
- The APR shall be calculated on the assumption that the amount of finance is valid for the term agreed upon and the parties’ adherence to their obligations according to the conditions stipulated in the financing agreement.
- The APR must be calculated and expressed in percentage points with a minimum of two basis points, rounding half basis points to the nearest full basis points.
- In case the finance agreement contains a clause allowing variations in term cost and fees contained in the APR (e.g. floating) which is not quantifiable at the time of financing, the APR must be calculated on the assumption that the term cost and other charges remain fixed in relation to the initial term cost applied and will remain applicable until the end of the financing agreement.
Article 10: Specific Requirements for Credit Cards Products
Finance providers while calculating the APR for credit cards shall assume the following:
- The amount of finance is provided for a period of 1 year starting from the date of the initial drawdown or card allotment/approval date, and that the final payment made by the borrower clears the principal payment, term cost and other charges, if any.
- The principal payments and term cost are repaid by the borrower in 12 equal monthly payments, commencing 1 month after the date of the initial drawdown.
- If the ceiling of the credit card has not been determined, that ceiling shall assumed to be SAR 10,000 when calculating the advertised APR.
- At the pre-contractual stage, the amount of finance shall be equal to the financing limit or credit card limit requested by the customer or offered to the customer.
- At the contractual stage, the amount of finance shall be equal to the financing limit or credit card limit based on the agreement concluded with the borrower.