Key Takeaway:
- Credit cards give credit cardholders the ability to borrow funds for purchases up to the credit cardās limit. If you return the borrowed funds in time (statement balance), you will not have to pay any interest.
- Not all credit cards are haram. Muslim scholars are unanimous that credit cards that do not involve riba (interest) are permissible in Islam. However, in western societies, it is virtually impossible to find a credit card that does not have interest based contractual agreements.Ā
- There are two major schools of thought. The first group of scholars suggest that it is totally haram to have a credit card (that involves interest). The second group of scholars believe that conventional credit cards (that charge interest on late payments) are permissible if you pay back the borrowed amount in time to avoid riba.
What is a Credit Card?
A credit card is a rectangular card that acts as a line of credit, issued by banks and other financial institutions. A credit card holder can borrow funds from the bank to purchase items. These funds are to be returned within the specified period defined in a credit card statement. The statement balance due date is typically within a 30 day window.Ā
If the credit card holder fails to return the funds within the specified period, interest and late fees may be added to the outstanding balance. This interest keeps on compounding monthly until the amount is paid back.
What are Zero-interest or 0% APR Credit Cards?
Zero-interest credit cards allow cardholders to borrow funds or make purchases interest free typically for an introductory period of 6 months to 24 months. After the completion of the introductory period, the interest rates default back to what was defined in the terms and conditions.Ā
However, zero-interest credit cards might involve fees such as balance transfer fees, processing fees, or monthly fees. It is important to read the fine print to determine the true cost of maintaining a recurring balance on one of these credit cards.Ā
Do Credit Cards Involve Riba?
Simply put, if you pay off your statement balance on a monthly basis and avoid holding a recurring balance month over month, you will not have any riba added to your balance. That being said, credit card companies and financial institutions and are known to partake in exploitative practices especially in dealings with low income and financially unaware individuals. Credit card interest rates are typically extremely high, often making it difficult for people to pay off. There is a message to be heard here. Interest is haram for a reason, the example of interest on credit cards is one of many reasons where people are exploited in times of need.Ā
Islamic banks offer Shariah-compliant credit cards and line of credit LOC that do not charge interest. These alternatives to regular credit cards are much more convenient and fair options. Unfortunately there arenāt any viable Islamic based credit cards in the United States.Ā
Are All Credit Cards Haram?
Scholarly opinions vary on this topic. There are two primary schools of thought, one group argue that the use of traditional credit cards are impermissible due to the fact that you and the bank are entering in an Islamically invalid contract (agreement to pay riba/interest in the event you miss or delay a payment) even if you plan to pay your monthly statement balance off in a timely fashion. The second group deem traditional credit cards permissible under certain conditions which will be detailed later in the article.Ā
In other geographic markets, Islamic banks and even some traditional banks have launched Shariah-compliant alternatives to conventional credit cards. Unfortunately there arenāt viable options in the US market as of yet but inshAllah we hope to see this change in the near future.Ā
Scholarly Opinions on Credit Cards, First Group: Impermissible if it involves riba in any way
The first group of scholars are adamant that traditional credit cards are not allowed because they involve riba contractually (even if you as a card holder plan to pay your balance on time). We offer a glimpse into their reasoning below.Ā
International Islamic Fiqh Academy
The International Islamic Fiqh Academy passed a resolution (Number 63/1/7) after studying several research papers on credit cards.Resolution . The International Islamic Fiqh Academy is basically of the view that if usurious interest is imposed on the borrowed amount, then the credit card in question is impermissible in Shariah. Even if the cardholder pays before interest is charged on the amount, a credit card involving interest is haram in Islam.
Assim-al-Hakeem
Sheikh Assim-al-Hakkem responded to a question about permissibility of credit cards in Islam saying: Generally, a credit card is a prohibited transaction. Those who indulge in spending money through credit cards, start buying too much on their credit cards and end up paying interest. This is prohibited. It is a major sin in Islam.
Second Group: Permissible under certain conditions
The second group of scholars believe that the use of credit cards is permissible as long as the credit card holder pays back the borrowed amount in a timely fashion and is not charged interest. Listed below are several scholarly opinions arguing that the use of credit cards under certain conditions can be deemed permissible. We noticed that many of the scholars who categorize conventional credit cards as permissible under certain conditions tend to be located in geographical markets that do not have halal Islamic based alternatives.Ā
Our two cents: In a nutshell, if you live in a western country with little to no halal alternatives and there is a legitimate need for a traditional credit card then the scholarly opinion above should apply to you. Western societies have interest based contracts in almost every aspect of our lives. Many of us travel and have to rent cars or book hotel rooms which oftentimes require a credit card upon booking. Based on an individualās lifestyle, not having a credit card may pose a major inconvenience or even a hurdle.Ā
Yasir Qadhi
Yasir Qadhi, an Islamic preacher, theologian, and imam, gave a detailed answer: Are Credit Cards Haram?
He said that the Assembly of Muslim Jurists of America (AMJA) and himself are of the view that if it is a need to get a credit card, not a life-or-death situation, one can get it. Only those who need a credit card should get one.
He further said that some people live a very simple life, they donāt need credit cards to buy groceries or pay rent, they use their paycheck to do that. They can pay using debit cards, or simply by a check.Ā
Dr. Muhammad Salah
Dr. Muhammad Salah deemed the credit cards permissible for Muslims living in non-Muslim countries who do not have any halal althernatives to credit cards. He mentioned that a Muslim accquiring a credit card must ascertain that they do not postpone a payment by signing up for direct withdrawals from their account so they donāt miss a payment.Ā
Credit Cards in the Contemporary World
Credit cards can be useful for building credit, maintaining good financial health, staying protected from fraud and making day-to-day purchases with ease. Having a credit card has numerous benefits if you are financially responsible.Ā
The fraud-liability feature of many credit cards makes online payments a breeze. You do not have to carry cash everywhere, especially when traveling. Also, prepayment for certain services can only be made through credit cards such as hotel reservations.
Now, as mentioned earlier, many Mulsims live in countries and states that do not have viable halal alternatives to credit cards. Not having a credit card in certain situations can make financial matters stressful. Although credit cards are not an absolute necessity, having a credit card makes life easier.Ā Ā
For example, most hotels require a credit card for booking. Not having one means that you have to book using a debit card and you can only stay at hotels that accept debit cards (there are not many of those around). When you pay using a debit card, the hotel puts a hold on your accountĀ for a fixed amount and also exposes your account to certain risks. Having a credit card in such a situation gives you additional financial freedom.Ā
Conclusion
Islamic finance is a very diverse field and Muslim scholars have wide-ranging views on each topic. The issue of credit cards is also one of the most debatable ones because having a credit card is an absolute need for some people living in countries where Muslims are a minority.
There are many scholarly opinions on the matter and at the end of the day the intention is what matters. As quoted by some scholars, if there is a legitimate need for credit cards (i.e. hotel bookings, rental cars, business fraud prevention, etc.) then maintaining a credit card is permissible with the understanding that you must pay off your statement balance to prevent the accrual of interest.Ā
As some of the scholars mentioned, credit cards promote the idea of purchasing products now and paying for them later which in a way is un-Islamic. We should strive to live within our means. May Allah (SWT) guide us all.