The following terms and phrases, where used in these Rules, shall have the corresponding meanings unless the context requires otherwise:
SAMA: The Saudi Central Bank.
Rules: Rules Governing the Calculation of the Annual Percentage Rate (APR).
Finance Providers: Banks, and Finance Companies Licensed to engage in retail lending.
Borrower: a person receiving finance.
Financing Agreement: an agreement whereby financing is granted for the activities listed in the Laws and Regulations.
Amount of Finance: the ceiling or the total amounts made available to the borrower under a finance agreement.
Annual Percentage Rate (APR): The discount rate at which the present value of payments and installments that are due from the borrower representing the total amount payable by the borrower equals the present value of all payments of the amount of financing available to the borrower on the date on which the financing amount or the first payment thereof is available to the borrower.
Total Amount Payable by the Borrower: the sum of principal loan amount and the total cost of finance.
Total Cost of Finance: All the costs to be paid by the borrower under a financing agreement other than the amount of Finance, including term cost, fees, commissions, administrative services fees, insurance, and any charges required to obtain finance excluding any expenses the borrower can avoid such as costs or fees payable by the borrower due to his breach of any of his obligations contained in the financing agreement.
1. These Rules shall be applicable on all finance providers engaging in retail lending.
2. The Rules shall be read in conjunction with the related Laws and Regulations, including but not limited to the following:
- Finance Companies Control Law and its Implementing Regulation.
- Rules Regulating Consumer Microfinance Companies.
- The Rules on disclosure of interest rates on financing and saving Products.
- The Regulations for Consumer Financing.
- SAMA’s Circular No. 381000095091 issued on 10/9/1438H to clarify Article (10) and Article (21) and the APR Calculation Mechanism in the Regulation for Consumer Financing.
1. The objective of these Rules is to standardize the Annual Percentage Rate (APR) calculation for different types of retail lending, ensuring transparency in the finance offers and comparability to enable retail consumers to make informed decisions.
2. The APR for financing transactions shall be determined in accordance with the instructions and APR Calculator implemented through these Rules for the following:
a. Advertising and promotional materials.
b. Finance offering stage.
c. Financing contract.
d. Periodic statements provided to customers.
e. Any other disclosure of APR.
Finance providers shall utilize the Excel based calculator issued by SAMA for the purpose of implementing the Rules.
1. Finance providers shall update the relevant policies and procedures to comply with the requirements included in the Rules.
2. Finance providers are responsible for implementing adequate internal controls and audit mechanisms to safeguard the integrity of the APR Calculator deployed. In case where the APR Calculator is automated, finance providers should verify the results obtained using the automated tool by comparing those results to the figures obtained by using Excel based APR Calculator provided by SAMA.
3. Finance providers shall also ensure that the APR Calculator made available to customers through their websites is updated to align with the Rules requirements and the enclosed Calculator.
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.
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.