Answered by: Maulana Irfan Ali
Can someone please help me with this Question,
It is about financing a property. The bank would like to do the following to comply with our request not to pay interest: The house costs, for example, € 500,000. The bank calculates the interest for 20 years and comes to € 90,000, for example. Now the bank says that they are giving us a loan of € 590,000, but I only get paid out of the money (the price of the house) 500,000. The bank keeps the 90,000 itself, even though it is in credit. On paper, I have taken out a loan of € 590,000 and will have to repay that over the next 20 years without additional costs (interest). Is that allowed, or is it to be equated with interest?
In summary, the bank gives me a higher loan than I need and demands everything back. But it also automatically keeps the difference at the beginning.
P.S .: the amount to be repaid is fixed from the beginning of the contract and cannot actually be changed. In the example: € 590,000
In the name of Allah, the Most Gracious, the Most Merciful
The above-mentioned case of finance will still be invalid and not allowed in Islam. The reason is as follows.
The bank has still calculated the interest over the period of twenty years and applied that to the mortgage. After applying the excess of 90,000 which in return they did not give you but kept themselves is in exchange for nothing making the transaction not allowed in Islam.
Putting a higher price but keeping the difference in the start and giving the loan of just the figure is also a form of deficit for the buyer which is not allowed from an Islamic perspective.
(Surah Baqarah verse 275)
Only Allah knows best
Written by Maulana Irfan Ali
Checked and approved by Mufti Mohammed Tosir Miah
Darul Ifta Birmingham