I have a question on the special cheque offer we receive by the credit card companies. Let say if there is 0% interest for balance transfer for 6 months, it seems like a good deal to pay off other debts/credit cards/line of credit to avoid interest.
However the catch is that there is a balance transfer fee of 1% of the amount you transfer. Does it fall under interest or its a ‘service fee’ according to Islamic ruling. The reason I am asking is that normally in Islamic financing, the ruling goes by the terminology. For any profit or lending fee that says this much ‘interest’ will be paid to you as profit, or you should pay as borrowing cost then it becomes Ribaa.
Or it doesn’t matter if its a service fee or Interest, when there is a fixed % involved in a transaction, its considered Ribaa ?
Re: Balance transfer fee or another form Interest?
What is your relation ship with this company? the company has offered you a loan to pay off your previous loan, and there is a hadith
then in this case any thing by what ever name you give is RIBA.
Mere similarity does not make one thing haram, being in the industry and being one of critiques of Islamic banking i still can not claim about it being haram ,rather it is because overall banking system including fractional reserve system is a dajjali weapon, so we may ask peple o avoid anking channels if they could , but if they have to use a banking channel then they must use islamic banks, as at maximum there is a difference of opinion on Islamic banking but a unanimous opinion on conventional banking being haram.
Re: Balance transfer fee or another form Interest?
How can that be Riba? That is a service fee that bank is charging because transfer of loan is a service. So the loaner is paying for the service which is like I pay someone to cut my grass.
If anything, this credit card offer is givi ng him a chance to get out of Riba situation (provided that he pays it off within 6 months).
Re: Balance transfer fee or another form Interest?
Peace TLK,
I don’t remember the hadith now but If I recall it than in simple wording 'when you gives money to some1 and while returing it if you charge any amount that falls under ‘interest’ which is haraam. So in OP’s case, the bank offer cheque (certain amount) and when you return they charge something from you in return would be ‘interest’ (i guess).
In your example i.e. cutting the grass is oky but when someone getting something out of cutting the grass (smooth surface for whatever purpose) is like getting profil out of cutting grass is (i think) a shape of interest.
Re: Balance transfer fee or another form Interest?
Islamic loans have rules ... The most obvious rule is they are meant as a charitable gesture. If there is talk of a loan and business being made from this loan ... Then it is riba ...
Consider Buyer A goes to Seller B and they barter to agree a price $P on some commodity. When the deal is done, Buyer A says he cannot purchase the commodity because he does not have enough money ... So, B gives him the option to pay that $P over a year.
Now consider a mortgage A goes to B and asks for loan to buy house $P ... Since B wants to make money on this ... B buys the house at $P and then sells the house to A at price $P+$X ... However, when the deeds come to A and the value of the property is in actual fact only $P ... The effect is that B has taken A $X amount out of pocket. So even a fixed amount above the purchase price is not working out as "fair" ... It is not as if the house price is equal to the buying price.
Consider loan taken by A from B ... And B charges 1% for the service ... Service of paying off a debt ... Only to put them in a different one ... Claiming 0% interest, but have already taken 1% of the full amount ...
Say ... Loan = £10,000 ... 1% = £100 ... It could save a lot of money, but it still riba. They gamble with the prospect of taking the debt off someone else, in return for charging you less for a short period of time.
Islamic loans are charitable ... Please remember that.
Re: Balance transfer fee or another form Interest?
Now consider a mortgage A goes to B and asks for loan to buy house $P ... Since B wants to make money on this ... B buys the house at $P and then sells the house to A at price $P+$X ... However, when the deeds come to A and the value of the property is in actual fact only $P ... The effect is that B has taken A $X amount out of pocket. So even a fixed amount above the purchase price is not working out as "fair" ... It is not as if the house price is equal to the buying price.
Peace psyah,
Is this term if used in a business to make profit (not related to bank) what it would be? Just want to clear myself.
Example: If a businessman buy a product from an agent @ 'A' and sells in market @ A+1. Than the +1 will be considered 'sood' or profit?
Re: Balance transfer fee or another form Interest?
Islamic loans have rules ... The most obvious rule is they are meant as a charitable gesture. If there is talk of a loan and business being made from this loan ... Then it is riba ...
Consider Buyer A goes to Seller B and they barter to agree a price $P on some commodity. When the deal is done, Buyer A says he cannot purchase the commodity because he does not have enough money ... So, B gives him the option to pay that $P over a year.
Now consider a mortgage A goes to B and asks for loan to buy house $P ... Since B wants to make money on this ... B buys the house at $P and then sells the house to A at price $P+$X ... However, when the deeds come to A and the value of the property is in actual fact only $P ... The effect is that B has taken A $X amount out of pocket. So even a fixed amount above the purchase price is not working out as "fair" ... It is not as if the house price is equal to the buying price.
Consider loan taken by A from B ... And B charges 1% for the service ... Service of paying off a debt ... Only to put them in a different one ... Claiming 0% interest, but have already taken 1% of the full amount ...
Say ... Loan = £10,000 ... 1% = £100 ... It could save a lot of money, but it still riba. They gamble with the prospect of taking the debt off someone else, in return for charging you less for a short period of time.
Islamic loans are charitable ... Please remember that.
all this relies on one basic tenet - that the value of money is the same at all times.
which is never true. money is more valuable at times of shortages, and less in times of excess. an interest rate is a price tag on using someone's money. it becomes usury only when the price is exorbitant, or not made clear to the paying party.
Re: Balance transfer fee or another form Interest?
all this relies on one basic tenet - that the value of money is the same at all times.
which is never true. money is more valuable at times of shortages, and less in times of excess. an interest rate is a price tag on using someone's money. it becomes usury only when the price is exorbitant, or not made clear to the paying party.
Re: Balance transfer fee or another form Interest?
Peace psyah,
Is this term if used in a business to make profit (not related to bank) what it would be? Just want to clear myself.
Example: If a businessman buy a product from an agent @ 'A' and sells in market @ A+1. Than the +1 will be considered 'sood' or profit?
This is not the same thing ... For a number of reasons ... Firstly, if the property was bought fully in one go ... The price would be different ... Secondly, if the seller has a product and the buyer has no commitment, but after the commitment is made to buy it ... Then the seller increases the value that is riba ... The seller needs to take full risk of buying in order to sell at profit ... In which case the buyer may or may not buy the product. The seller will have an asset.
But the bank has no intention in keeping a given property. So it will arrange a purchase only when the buyer has committed to buy it. Effectively the bank is giving a loan ... And it is not selling for profit ... Because the loan giver does not take the risk. But a merchant does take the risk.
Re: Balance transfer fee or another form Interest?
I don't see a balance transfer fee as interest on a loan, but rather a fee, as TLK said.
The companies are moving "goods" for you. Money is simply a good. It's not worth anything by itself. The credit card company is taking your money and moving it around. They are not charging you for the loan, they are charging you for the convenience and service. Obviously I disagree with the notion that calling something "interest", makes it interest.
all this relies on one basic tenet - that the value of money is the same at all times.
which is never true. money is more valuable at times of shortages, and less in times of excess. an interest rate is a price tag on using someone's money. it becomes usury only when the price is exorbitant, or not made clear to the paying party.
Interest also compensates one for the opportunity cost and inflation. Plus, why would anyone lend money to someone they don't know? Islamic banking would be nice in theory, but disadvantageous against modern economies, and ultimately, impractical.
Re: Balance transfer fee or another form Interest?
These services come under aqd e tabrru ( a partial defination can be found here Institute of Islamic Banking and Insurance - Key Term - T see Tabrru) and it is not allowed to take benefit in such contract.Bank can however recover actual expenses.In this case bank is charging some percentage of the principal so the amount will change with the amount of principal amount , this according to my knowledge id RIBA.
Re: Balance transfer fee or another form Interest?
Brother RIBA is a much wider term, sood is just part of it,RIBA alfazl Riba - is not included normaly in the meaning of sood.
What do you mean by credit cards benefit? is it the principal loan/amount? in that case principal amount is not RIBA but a RIBA based loan on which there is a risk of RIBA.
