Postponing installments at the beginning of the loan is the most expensive for the customer

A banking expert confirmed that postponing personal loan installments leads to an extension of the repayment period, and consequently an increase in interest, indicating that postponing installments at the beginning of obtaining the loan is considered the most costly to the customer, and leads to a significant increase in the total cost of the loan, because the remaining balance is at its highest levels at this stage.

The banker explained to Emirates Al-Youm that the increase in Islamic banks occurs over the duration of the loan without an increase in profit, unlike traditional banks that, according to their policy and operating system, can impose interest as a result of the postponement, in addition to the fees imposed.

The banking expert’s response came as a comment on a local bank imposing an amount of 10,000 dirhams in interest on the total loan, due to the customer postponing his monthly installment 12 times, in addition to imposing a postponement fee of 105 dirhams for each postponement, equivalent to 1,260 dirhams.

Charge interest

In detail, a local bank imposed an amount of 10,000 dirhams in interest on the total loan, due to the customer postponing his monthly installment 12 times over the course of the loan repayment period, in addition to imposing a postponement fee of 105 dirhams for each time it was postponed, equivalent to 1,260 dirhams.

The trader, who preferred not to have his name published, told Emirates Today: “I was not informed by the bank’s employees about the existence of interest being increased over the amount agreed upon according to the contract with the bank, with the exception of their disclosure of the installment postponement fee of 105 dirhams,” stressing that he does not understand the mechanism by which all this additional amount was calculated as a result of the postponements.

High cost

For his part, banking expert Amjad Nasr said: “Postponing loan installments leads to extending the repayment period, not canceling interest. Since interest is calculated on the basis of the remaining balance and the duration of the loan, any extension of the time period necessarily leads to an increase in the total interest due.”

He added to “Emirates Today”: “Also, postponing the installments at the beginning of obtaining the loan significantly increases the total cost of the loan, because the remaining balance is at its highest levels at this stage, and thus interest continues to be calculated on almost the entire loan amount without being reduced. Also, extending the repayment period from the beginning means that the interest will be calculated for a longer period of time, which leads to an increase in the total interest paid, a rise in the final cost of the loan, and in some cases an increase in the duration of the financial commitment by several additional months.”

Nasr stressed that “postponing installments in the early stages of the loan is considered the most costly for the customer, compared to postponing in the later stages, where the remaining balance is less, and the impact of the additional interest is relatively limited.”

He continued: “With each postponement of the monthly installment, the loan term is extended by the number of deferred months, and the remaining balance remains unpaid for a longer period. Interest continues to be calculated on this balance during the postponement period, and as a result, the total value of the interest paid increases over the life of the loan.”

In response to a question related to Islamic banks and whether they apply this rule, Nasr said: “For Islamic banks, there should be no increase in profit upon postponement, and the loan amount remains, while only the duration of the loan is increased, unlike traditional banks that can – according to their policy and work system – impose interest as a result of postponement, in addition to the fees imposed.”

Nasr stated that in the case of the customer who postponed the monthly installments 12 times, this repeated postponement led to a significant extension of the loan term, which resulted in additional interest being charged on the remaining balance during the additional period, which led to a total increase of about 10 thousand dirhams.