Islam and Loan Guidelines
Loans and debts are two different things in Islam. A loan (qard) is a contract in which one party lends money or goods to another party without any profit or benefit. A debt (dayn) is an obligation to pay back money or goods that one has borrowed or received. ¹
- Islam does not prohibit taking loans and debts, as long as they are in accordance with Islamic law (shariah). This means that they should be free of interest (riba), which is strictly forbidden in Islam. Interest is any increase or excess that is stipulated or expected in a loan or debt contract, whether it is fixed or variable, nominal or real, simple or compound. ²
- Islam also encourages paying off loans and debts as soon as possible, and warns against delaying or defaulting on them. The Prophet Muhammad (peace and blessings of Allah be upon him) said:
"The soul of a believer remains suspended because of his debt until it is paid off." (Narrated by al-Tirmidhi).
He also said:
"Whoever takes people's money intending to repay it, Allah will repay it on his behalf, and whoever takes it intending to waste it, Allah will destroy him because of it." (Narrated by al-Bukhari). ³
- Islam also advises Muslims to be careful and prudent before taking loans and debts, and to avoid them if possible. The Prophet Muhammad (peace and blessings of Allah be upon him) said: "The best of you are those who are best in paying off their debts." (Narrated by al-Tirmidhi). He also said:
"Whoever asks for a loan when he has enough, his face will be blackened on the Day of Resurrection." (Narrated by Ahmad).
- Islam also provides some alternatives and solutions for those who need financial assistance or relief from loans and debts. These include giving charity (zakat), seeking forgiveness (istighfar), asking for help from relatives or friends, seeking lawful means of income (halal), reducing expenses (qana'ah), and resorting to arbitration or mediation (sulh).
Source: Conversation with Bing, 3/25/2023(1) All You Need to Know About Loans and Debt in Islamic Law. https://azislam.com/loans-and-debt-in-islamic-law Accessed 3/25/2023.
(2) Ruling on taking an interest-based loan for an urgent need - Islam .... https://islamqa.info/en/answers/9054/ruling-on-taking-an-interest-based-loan-for-an-urgent-need Accessed 3/25/2023.
(3) Repenting from Taking an Interest-based Loan - IslamQA.info. https://islamqa.info/en/answers/60185/repenting-from-taking-an-interest-based-loan Accessed 3/25/2023.