Should You Pay Off Your Loan Early?

SAMA's Early Settlement Penalty Cap

The Saudi Central Bank (SAMA) caps the early settlement penalty at:

Penalty = min(3 months' installments, 1% of remaining balance)

Example

If your installment is SAR 5,000 and remaining balance is SAR 400,000:

• 3 months' installments = SAR 15,000
• 1% of balance = SAR 4,000
• Penalty = SAR 4,000 (the lesser)

When is early settlement worth it?

It makes sense if:

• You have a large lump sum (bonus, inheritance)
• You're in the early years of the loan (when interest is highest)
• Total savings far exceed the penalty

When is it not worth it?

It may not be worth it if:

• You're in the final years (most payments are principal, not interest)
• You have an investment opportunity with returns higher than your loan rate