About the Murabaha Financing Calculator
This Murabaha financing calculator estimates the installments on Islamic cost-plus (murabaha) financing for a car, home, equipment or other goods. In a murabaha sale the bank buys the asset and resells it to you at a disclosed markup, payable in installments. The markup — the bank’s profit — is fixed when the contract is signed, so your installment never changes and the bank cannot add profit if you pay late — any late charge agreed in the contract is typically donated to charity rather than kept, so it does not become interest (riba).
Enter the asset’s cost, your down payment, the annual profit rate the bank quotes and the term. Choose a flat markup (profit = financed cost × rate × years, the usual way murabaha is priced) or an amortized profit rate (the markup equals what a level-payment schedule at that rate would produce, as many Western Islamic banks price home and auto murabaha). The calculator returns the installment, the total profit, the full deferred selling price and an equivalent APR so you can compare the offer fairly with a conventional loan.
A flat 5% markup is not the same as a 5% APR: because you repay the cost gradually but the markup is calculated on the full amount for the whole term, the equivalent rate is nearly double. Administration or arrangement fees are included in the equivalent APR when you enter them.
With the default inputs, the monthly installment is $520.83. Change any value above to recalculate instantly.
How to use the murabaha financing calculator
- 1Enter the price the bank pays for the asset and your down payment.
- 2Enter the annual profit rate quoted in the murabaha offer.
- 3Set the term in months.
- 4Choose whether the profit is a flat markup or an amortized rate (check the offer wording).
- 5Add any admin fee, then compare the equivalent APR with other financing.
Formula and method
The amount financed F is the asset cost minus your down payment. With a flat markup, the profit is the financed cost multiplied by the annual profit rate and the number of years, and the deferred price (cost + profit) is split into equal monthly installments. With an amortized profit rate, the installment is the level payment that would repay F at that annual rate, and the profit is simply what those installments total above F. In both cases the profit is fixed in the contract up front.
The equivalent APR is the monthly declining-balance rate that makes the present value of the installments equal to the financing you actually receive (F minus any admin fee), multiplied by 12. The schedule splits each installment between cost recovery and profit using the implied rate, a common way Islamic banks recognize profit over time; your contract may allocate it differently.
- F
- Amount financed (asset cost − down payment)
- p
- Annual profit (markup) rate
- n
- Number of monthly installments
- i
- Monthly profit rate for amortized pricing (p ÷ 12)
Worked examples
$30,000 car, $5,000 down, 5% flat markup over 5 years
The bank finances $25,000. A 5% flat markup for 5 years is $25,000 × 5% × 5 = $6,250, so the deferred price is $31,250, or $520.83 a month for 60 months. Because the markup is charged on the full $25,000 for the whole term, it equals a declining-balance APR of about 9.15%.
$40,000 vehicle, $8,000 down, 6% amortized over 48 months
With amortized pricing the installment on $32,000 at 6% for 48 months is $751.52. The installments total $36,073, so the bank’s profit is about $4,073 and the equivalent APR is exactly the 6% quoted.
$15,000 equipment, no down payment, 4% flat for 3 years with a $300 fee
A 4% flat markup on $15,000 for three years is $1,800, giving installments of $466.67. Because the $300 fee means you effectively receive $14,700, the equivalent APR is about 8.9%.
Frequently asked questions
How is murabaha different from a conventional loan?+
In murabaha the bank buys the asset and sells it to you at a disclosed cost plus a fixed profit, so you owe a sale price rather than a loan with interest. The markup is set at signing and cannot grow if you pay late, which is why scholars consider it compliant with the prohibition on riba.
Is a murabaha profit rate the same as an interest rate?+
Not numerically. A flat profit rate is charged on the full financed cost for the entire term, so for typical 3–7 year terms its equivalent APR is roughly 1.8 times the flat rate. Always compare the equivalent APR, not the headline profit rate.
What happens if I pay off murabaha financing early?+
The selling price is fixed in the contract, so you are technically liable for the full deferred price. Many Islamic banks voluntarily grant a rebate (ibra) on unearned profit when you settle early; check your contract and local regulations.
Can a bank charge late fees on murabaha?+
Banks cannot increase the profit because you pay late. Many contracts include a late-payment charge that the bank must give to charity rather than keep, so it acts as a deterrent without becoming interest.
Why does the bank need to own the asset first?+
A valid murabaha requires the bank to take ownership (and the associated risk) of the asset before selling it to you. That genuine sale is what distinguishes the profit from interest on lent money.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.