Q: Is it permissible to take out a loan in which repayment with interest is not required so long as it is paid off prior to the expiry of the grace period?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: In principle, if one agrees to take a loan from another with a grace period in relation to the payment of interest such condition of potentially paying interest is Islamically void whilst the loan itself is valid. If one then repays the loan before the maturity of the grace period and avoids the payment of interest there are a number of views amongst contemporary scholars with regards to permissibility.
• One view is that it is not permissible as permissibility is not dependent solely on the end result of a contract but also on the form which here includes an agreement to pay interest.
• An alternative view is that if no interest is paid it is permissible as the loan is valid whilst the interest condition is void and so, in effect, does not exist. It is also argued in favour of this view that the interest clause is only invoked by the choice made by the borrower. Thus, it can be referred to as an optional interest clause, because even with this clause the borrower has the option to repay the loan within its given grace period and, in this manner, would not be involved in giving any interest. Consequently, signing a contract that gives the borrower an option to deal on an interest basis or to have his transaction completely interest-free cannot be prohibited in the Sharī‘ah because the matter is left to his choice and as a Muslim he will certainly choose not to deal with interest. Effectively, the borrower is given the choice to do what is lawful or to what is unlawful and his acceptance of the choice does not mean the he accepts the unlawful.
As the matter is related to interest, the more cautious position would be to adopt the opinion of prohibition. However, if one is absolutely sure that he/she will not incur the interest and one cannot meet his/her current need without the loan then it appears that there is license to adopt the position of permissibility whilst ensuring no interest is incurred.