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Masood Amin
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Interest Free Loans

Masood Amin
Posted May 18 2023, 13:50

Hello BP,

I am a muslim trying to get started with my investment career. However, as part of my religion it is forbidden to pay or recieve interest. However there is an alternative way which is charging the profit on top of the purchase price. Let me give you an example.

Normal/regular loan: 

House Price: $600k

Interest: 5%

30 year fixed

Total price after 30 years: $1,295,029.13

$1,295,029.13 - 600k = 695,029

Bank makes: $695,029 in profit

Islamic Loan:

House Price: $600k

30 years 

Profit margin for bank: $695,029 (Add this to house price)

Total loan amount over 30 years: $1,295,029.13

0% APR

As you can see the bank will still make the same amount of money. So its pretty much the same thing but we cancel interest out. Do you think banks can structure a deal like this?

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