Muslims Are Allowed to Pay Interest, e.g. on a Car or Home Loan

Many Muslims believe the law regarding interest applies to both people who charge interest and pay interest. However, the Quran makes it clear that what is forbidden is only the charging of interest or usury.

Definition of Riba

To understand the meaning of riba, Verses 2:278-279 give us a good understanding of what riba is.

يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبَا إِن كُنتُم مُّؤْمِنِينَ
O you who have believed, fear Allah and give up what remains of interest (Arabic: baqiya min riba), if you should be believers. (2:278)
فَإِن لَّمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِّنَ اللَّهِ وَرَسُولِهِ ۖ وَإِن تُبْتُمْ فَلَكُمْ رُءُوسُ أَمْوَالِكُمْ لَا تَظْلِمُونَ وَلَا تُظْلَمُونَ
And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your capital sums (Arabic: amwaalikum) – [thus] you do no wrong, nor are you wronged. (2:279)

The Arabic word “amwaalikum” means “your capital sums”. In most cases, this means your original or principal amount of money that you lend someone. If you charge someone interest, then you will receive your original loan amount + interest. Mathematically, the equation would read

Original Loan Amount + Interest = Total

The verses above instruct people to give up what remains of interest and to repent and if they do so, they can keep their capital sums or the original money they lent to someone.

Trade vs Usury

Making a profit from trade is different from making a profit from usury. According to verse 2:275, trade is allowed but usury is not.

الَّذِينَ يَأْكُلُونَ الرِّبَا لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ الَّذِي يَتَخَبَّطُهُ الشَّيْطَانُ مِنَ الْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوا إِنَّمَا الْبَيْعُ مِثْلُ الرِّبَا ۗ وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا ۚ فَمَن جَاءَهُ مَوْعِظَةٌ مِّن رَّبِّهِ فَانتَهَىٰ فَلَهُ مَا سَلَفَ وَأَمْرُهُ إِلَى اللَّهِ ۖ وَمَنْ عَادَ فَأُولَٰئِكَ أَصْحَابُ النَّارِ ۖ هُمْ فِيهَا خَالِدُونَ
Those who consume usury will not stand except as stand one whom the Satan has confounded by his touch. That is because they say: “Trade is like usury,” but God has permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for God (to judge); but those who repeat (the offence) are companions of the Fire: They will abide therein. (2:275)

Example of trade

If you buy a product for x and sell it for x + 10 (profit), then that is trade.

Example of riba

If you lend someone 5 apples and one month later expect 7 apples in return, then the excess of 2 apples constitutes riba.

If you or a bank loans some money to someone with an interest rate (beyond currency inflation), then the profit from interest constitutes riba.

Capital sums

According to verse 2:279, a creditor is entitled to their capital back. Therefore, if the commodity lent is money, then it’s reasonable to expect the creditor to receive capital plus inflation since the value of money changes over time.

Exorbitant interest

يَا أَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا الرِّبَا أَضْعَافًا مُّضَاعَفَةً ۖ وَاتَّقُوا اللَّهَ لَعَلَّكُمْ تُفْلِحُونَ
O you who have believed, do not consume usury, doubled and multiplied, but fear Allah that you may be successful. (3:130)

Some people may use verse 3:130 to define usury as exorbitant interest. However, this verse merely indicates that usury, excessive or not, is forbidden. It is verses 2:278-279 which provide a suitable definition for riba.

Paying interest

There is no prohibition against paying interest. The prohibition is strictly and specifically limited to receiving interest.

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