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Lesson Loan

In this lesson, we will learn about the concept of a loan and some of its rulings in Islamic legislation.

  • Learn about the concept of the loan, it's ruling and the conditions for its validity.
  • Learn about the circumstances of a borrower when the loan is being repaid.

Allah has divided the livelihood among the people with His justice and wisdom. There are among them those who are rich and poor, the able and the needy, and it became customary for people to borrow from each other so that would help them to fulfill their needs. Since the legislation of Allah is complete and comprehensive, it has laid down several rulings related to loans. Allah singled out loans with the longest verse in the Quran, which is verse 282 of Surat Al-Baqara, and it is called the verse of Debt.

Definition of Debt

To give money to someone so they can benefit from it and pay it back later.

The Ruling of Loans

The loan is recommended for the one lending it and permissible for the borrower. Borrowing is not disliked because the borrower takes the money to benefit from it by fulfilling his needs and then pays it back.

If the loan benefits the lender, then it is usury, which is forbidden; in other words, he is lending someone money to get extra back. Likewise, if another contract is added to the loan, such as a sale of something, it is also forbidden, as it is not permissible to join the giving of an advance and the sale of something into a single contract.

The Wisdom of the Legality of Loans

Islam permits loans because of its kindness to people, facilitating their affairs, relieving their anguish, and consoling the needy. Moreover, it is one of the ways a lender can draw closer to Allah; the more severe the need of those to whom he is lending, the greater the reward.

Documenting the loan - small or large - is recommended by writing it down and having it witnessed. The amount, type, and term are written, so it is preserved, and the lender can have peace of mind that his right will not be lost or forgotten or denied, etc. Allah says: (O believers! When you contract a loan for a fixed period of time, commit it to writing. Let the scribe maintain justice between the parties. The scribe should not refuse to write as Allah has taught them to write. They will write what the debtor dictates, bearing Allah in mind and not defrauding the debt.) [Al-Baqara:282] And He says in the same verse: (You must not be against writing ˹contracts˺ for a fixed period—whether the sum is small or great. This is more just ˹for you˺ in the sight of Allah, and more convenient to establish evidence and remove doubts) [Al-Baqara:282]

Terms for the Validity of Loans

The loan should be made with the correct wording, offer, and acceptance, or what takes their place.
That the contracting party - a lender or a borrower - be an adult, sane, of sound mind, not coerced, and eligible to be given and receive.
The loan must be from money that is permissible according to the legislation.
The amount of the loan must be known.

Whoever borrows money from someone else must resolve to pay it back, and it is forbidden for a person to take people’s money without intending to return it to them, so if the time comes to pay the debt, he must return it. Abu Hurairah (may Allah be pleased with him) reported that the Prophet ﷺ said: «Whoever takes people’s money intending to pay it back, Allah will pay it on his behalf, and whoever takes it intending to spoil it, Allah will destroy him.» (Bukhari 2387)

The Circumstances of the one in Debt When Repayment is Due

If he has no money whatsoever, then this type of person must be overlooked and given more time due to his difficulty. Allah says: (If it is difficult for someone to repay a debt, postpone it until a time of ease. And if you waive it as an act of charity, it will be better for you, if only you knew.) [Al-Baqara: 280].
If he has more money than the amount of his debt, then this type of person must repay the debt, as it is forbidden for the one in debt who can repay to delay repayment once the time is due. Abu Hurayrah reported that the Prophet ﷺ said: «Delay in payment by a rich man is injustice.» (Al-Bukhari, 2288, Muslim, 1564)
If his money is the same as his debt, then he must pay off the debt.
If his money is less than his debt, then this person is considered bankrupt and is interdicted if all or some of the creditors demand it, and his money is divided among them according to his debt to each of them.

Ruling on Depositing Money in Banks

Depositing money in Islamic banks that deal in accordance with the rulings of legislation is permissible.
As for depositing money in banks that deal in usury, this falls into one of two cases: The first is that the deposit is in exchange for interest, which is forbidden usury and is not permissible. The second is that the deposit is in a current account without interest. This is also not permissible because supporting the bank to use the money in its usurious transactions. The case of absolute necessity is excluded from that. For example, suppose the depositor fears that his money will be lost or stolen, and he does not find a legitimate alternative to save his money. In that case, it is permissible to deposit the money due to a necessity.

It is not permissible to stipulate that a fine be imposed on the debtor if he is late paying on time because it is usury. It is not permissible to borrow with the existence of this condition, even if the borrower thinks that he can pay back on time without the fine being imposed on him because it is entering into a contract in which there is a commitment to usury.

Giving Extra when Repaying the Loan

Kindness in repaying the loan - as if he lends him something and he repays it better than it, or greater than it, or more than it - is desirable if it is not a condition; Because this is showing good judgment and noble manners. If, however, it is conditional, then it is forbidden usury.

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