ISLAMIC CREDIT CARD HALAL OR HARAM ?

ISLAMIC CREDIT CARD HALAL OR HARAM ?

IS A CONVENTIONAL CREDIT CARD PERMISSIBLE IN ISLAM ? CONDITIONS AND DIFFERENCES BETWEEN ISLAMIC AND CONVENTIONAL CREDIT CARD

Either a conventional credit card is Halal or Haram depends on whether it involves interest (Riba), which is prohibited in Islam; since conventional credit cards charge interest on outstanding balances and late payments, they are generally considered Haram.

Either a conventional credit card is Halal or Haram is determined by its compliance with Islamic principles, and because conventional credit cards often involve interest and facilitate transactions with prohibited goods and services, they are typically deemed Haram by Islamic scholars.

For a credit card to be Sharia-compliant, it must not involve any interest charges or fees that resemble Riba, and it should operate on Islamic financial principles such as Ujrah (service fee) or Murabaha (cost-plus financing), ensuring that all transactions are transparent and ethically conducted.

Additionally, a Sharia-compliant credit card should include measures to prevent transactions involving prohibited (Haram) goods and services, provide clear terms without excessive uncertainty (Gharar), and be overseen by a recognized Sharia supervisory board to ensure full compliance with Islamic law.

HOW IS AN ISLAMIC CREDIT CARD DIFFERENT FROM A CONVENTIONAL CREDIT CARD?

Difference between Islamic and Conventional Credit Cards

Islamic Credit Card:

  • Operates in accordance with Shariah principles.
  • Islamic credit card doesn’t allow the element of usury (high interest rates).
  • Avoids charging or paying riba (interest).
  • No compounding of profits: profit margin for the cardholders is fixed for the whole period (between 35 and 60 months) and the profit is charged based on the remaining balance. The profit is calculated on a monthly basis, based on a outstanding due or monthly total transactions.
  • The bank issuing the payment card does not offer speculative financial products and does not invest in sectors that are not accepted by the Sharia.
  • Uses alternative financing methods like Murabaha (cost-plus sale) or Ujrah (service fee).
  • Penalties or late fees often go to charitable causes to ensure the bank doesn't profit from them.

Conventional Credit Card:

  • Operates based on interest-based financial systems.
  • Charges interest on unpaid balances.
  • Applied interest rates are often usurious.
  • Can have variable interest rates based on market conditions.
  • Penalties and late fees are typically profit centers for the bank.
    • li>These cards encourage to spend more than user perceives as income and motivate impulse spending, consumerism and debt proliferation.

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