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Fatwa CenterA loan that yields a benefit to the lender is Riba
Question
I am a computer engineer living in the UK. I want to buy a house but I do not want to take an interest-based loan. A friend of mine recommended an institution based in Manchester to participate with me in buying the house. They will pay 75 percent of the price and I will pay 25 percent. Then they will estimate the house rent value, which is usually lower than the market rent value. Consequently, I will pay 75 percent of the rent value every month. First, is this deal permissible? If the answer is yes, then I have another question, I do not possess the 25 percent to be a partner in buying the house. Therefore, can I ask a friend to lend me the sum on the condition that I pay him 25 percent of the rent premium every month, so that I can collect the sum of 25 percent, and then pay him back in full? In this case, he will benefit from the 25 percent which is the rent value that I pay him monthly?
Answer
All perfect praise be to Allaah, the Lord of the worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.
We supplicate Allaah The Almighty to reward and grant you guidance for not having made an interest-based loan. Also, we invoke Allaah The Almighty to make things easy for you and provide you with sustenance from where you do not expect.
The deal which is mentioned in the first question is permissible if it is carried out as we understood it. You will be a partner with this institution according to the percentage of the price of the house that you will participate in, which is one quarter (25 percent). Then the institution will rent its share of the house to you. Thus you will possess one quarter of the house and rent three quarters of it. This is permissible as long as it is not a rent-to-own contract, wherein what you are paying to the institution will be installments of the price of the house, and thus your share will steadily increase and the institution’s share will decrease until you completely own the house.
As regards the other question, you are not allowed to ask your friend for a loan because such a loan will bring him benefit, and this is indisputably impermissible according to scholars. This deal is a form of Riba and the Muslim is not allowed to enter a contract that includes anything thereof.
Allaah knows best.
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