Q: Can I take a loan that gives a choice between paying the principal within a defined period or the payment of an increment after the period?
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
A: In principle, any loan that gives a choice between paying just the principal within a defined period or the payment of an increment after the defined period is subject to a difference of opinion:
· Some scholars argue that this is not permissible even if an increment is not paid in the end arguing that permissibility is not dependent solely on the result of the contract but also on the form which here includes an agreement to pay an increment beyond the principal.
· Others argue that this is permissible as the condition of an increment (interest) is void whilst the loan itself is valid as a loan is initially a gratuitous contract even if the loan is returned at the end. Gratuitous contracts are not made defective by defective conditions; rather, the condition itself (i.e., that of an increment) is itself void.
· Some scholars hold that the contract is valid but not permissible as, although the interest condition is void and the contract valid, agreeing to the interest condition is a still a sin.
· Some scholars have argued that such contract gives a choice between conducting the contract according to Shari’ah (i.e., without an increment) or in contradiction of the Shari’ah (i.e., with an increment) and a conscientious Muslim will obviously choose the former and not the latter. Therefore, if one is assured of paying back the loan before any increment is payable and one firmly intends to do just that then there is licence to take out such loan.
One should attempt to take the most cautious approach but if there is a genuine need without any other alternative then it would appear that one can adopt the position of permissibility provided one is assured of paying back the loan before any increment is payable and one firmly intends to do just that.