Islamic FinancePersonal Finance

Are Credit Cards Haram or Halal?

Credit cards are prevalent and widely used by many Muslims today – but are they haram or halal?

Credit cards have their uses. With a credit card you can effectively smooth your finances over the course of a month, or make a large purchase and stagger the payments over a number of months. You can also earn rewards and cashback as well as benefit from credit card payment protection in the case of faulty goods or if the seller goes bust.

But at the heart of a a credit agreement is the interest-bearing loan that will start to accrue if you don’t make a payment on time. So what is a Muslim to do?

The Two Views

Certain scholars (e.g. here) argue that credit cards are impermissible as one is entering into a fundamentally impermissible contract (as one is agreeing to pay interest in the case of a delay). Others (cautiously) deem credit cards permissible to the extent one does not actually borrow from the credit card company (e.g. see Pro. Monzer Kahf here and sh. Faraz Rabbani here).

I am inclined towards the latter view because of four reasons:

  1. The act of borrowing on a credit card is itself not haram
  2. We live in a society where interest charges for late payments are hard-wired into our every contract
  3. Credit cards come with additional benefits
  4. Credit card companies don’t just make money from interest

1. The act of borrowing is itself not haram

The act of borrowing some money from someone interest-free is not itself impermissible – so long as you’re sure you’ll be able to pay the money back at the end and before the interest kicks in. That intuition is simple enough.

However, the introduction of a complex financial instrument like a credit card muddies waters around this debate.

So let’s take a step back. Say we just borrowed £100 off our neighbour and promised to pay him back within a month. In a month, Jeremy the neighbour comes and asks us for £100 but we fail to pay him back. What’s Jeremy going to do? He’s going to take you to court and sue you for £100 plus interest.

2. Interest payments for late payment are hard-wired into our economy

The “plus interest” is hardwired into our economy as a form of redress for late payment. If you pay your bills late you will find that in many of your contracts you will be required to pay interest on top of your bill. Technically that’s exactly the same contractual arrangement as the credit card – so if we were being even-handed in our approach, we would have problems taking out a simple utility agreement or even a mobile phone contract.

The point I’m driving at here is that we have to have a contextualised and real-world understanding of fiqhi matters and appreciate the wider implications of the argument.

What I am not saying however is that Muslims must settle for this. No – we should draft our own contracts so that there aren’t interest penalties for late payment, and where we are dealing with a massive consumer, we should campaign on this topic as a united front. (Perhaps, if you guys think this is a useful idea, IFG could even write to some major utility companies and ask for a tweak to the contract for Muslims? Let us know if you think that is the best way to do it.)

But for now we’ve got to live with it.

3. Credit cards come with certain other benefits

“But you don’t have to take out a credit card. You do need to sign up to mobile phone, utility, and internet contracts though,” one might reply.

However, credit cards come with their own benefits that must also be take into account: You get protection on purchases you make, which is particularly important in this age of online purchases and international trade (who’s going to track down a company that’s gone bust in the Philippines for your trainers?). Also, when travelling abroad most people will take a credit card along with them due to the lower costs and better exchange rates.

Also – let’s not forget the wider picture in which this debate sits.

What’s the alternative to a credit card? Using your debit card, right? However, what we sometimes forget is that when we deposit money into our account we’re lending money to our bank (for them to lend onward and make profit from interest). So if anyone is truly serious about this position – they should keep their money in gold (not even cash – as that itself is an IOU!) and pay only in gold at the local shop. I suspect this might prove quite tricky (though perhaps not impossible: In an interesting twist, there appears to be new credit cards backed by gold. Would you guys like these to be covered in a future article? If so, let us know in the comments below.)

4. Credit card companies don’t just make profit from interest

A credit card company charges businesses for purchase processing just like a debit card does, and so they have a separate revenue stream from each card in any case. So even for individuals who never go into debt, it is still lucrative for a credit card company. So one can’t make the argument that “they’re only giving you a credit so you go into debt.” There’s some truth to that statement, but it is certainly not the full picture.

Final words

So there you have it folks.

Coming up soon: a credit card hack to get you ~£400 in additional cash flow! So join our email group (box in the footer) to keep in the loop on this and related stuff.

Please let us know if you have any comments/queries and if you found this helpful. And if you did find it helpful, we would be extremely grateful if you shared this on to others in your network who would find this interesting.

57 Comments
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  • Salaam Alaikum,

    An excellent article on this. There are many credit cards that offer 25/30 months of interest free borrowing, and if managed correctly can result in easing cash flow. What would the position be with buying furniture etc. on 0% APR credit?

    I would be very interested to get more details about these gold-backed credit cards. I was under the impression that this would be more practical because if you borrow in gold you have to return the exact same quantity even if the price of gold has fluctuated. I do remember reading about a credit card system which was platinum-backed not gold-backed that was set up in the UAE to avoid falling into the 7 items that are explicitly mentioned in the hadeeth as being riba if they are traded for a different weight of the same item.

    Reply
    • salam Thaqib – jzk khayr for your kind words. Buying furniture on 0% apr would have the same analysis apply to them as for credit cards. pay up on time but other than that, go for it.

      So I am not too sure about actually borrowing on the gold-backed credit card, I was thinking more of this (https://nomadcapitalist.com/2018/11/24/gold-backed-debit-card/) which is simply a glorified debit card but where you pay using gold, rather than borrow. If you borrowed, then you’d have to return the exact same amount – otherwise it would be interest. Do link me to the UAE credit card if you find it – sounds interesting!

      Reply
  • Assalamoalikum
    Apparently imam Malik allows extra charge if payment has been delayed, but that extra money must go to charity. Allah knows best. I just heard on a video. If we want Muslim contract how companies going to secure their payment. The one way can be that the extra or plenty charge must go to charities.
    May Allah make it easy for all. Ameen.

    Reply
    • yes – that is certainly an opinion and one I personally see a lot of practical value in. When things go wrong in a contract you need to have some form of disincentive that stops people from just not paying up. But then that is of course interest. So giving it away achieves both the deterrent and also you don’t keep the haram income.

      Reply
      • On this concept on giving it away to charity (the interest) for investments, card, or whatever; if you’re a charity and know this money is haram, should you take it?

        Reply
  • I don’t see how money and a credit card are remotely comparable. In the US there isn’t really an alternative to a credit card, but in the U.K. a debit card is essentially the same thing but without the interest clause. Am I missing something?

    Reply
  • As salaam alikum
    What about the fact you have to pay a small handling fee? Is this not also classed as interest.
    Thank you for taking the time to put up the article and taking the time to reply to questions.
    Jazackallah

    Reply
    • What sort of handling fee are you referring to? Standard purchases on a credit card aren’t usually subject to any fee for a customer.

      Reply
      • Ah yes thankyou, I am referring to money or banck transfer cards, so as long as you stick purchase on 0% it is halal.
        Jazackallah for taking the time to reply

        Reply
        • Does this also apply to finance from companies. Say on couches?

          Reply
        • Money transfers are usually subject to a fee – as long as that fee is proportionate and isn’t a disguised form of interest then our approach is that this is fine.

          Reply
          • If a bank is offering a loan at 2.99% APR with no handling fee and another bank offer a credit card balance transfer with 0% Interest rate but 3.5% handling charges which option is closer to Islamic finance if at all. Assume the customer is trying their best to avoid any interest and hoping to pay back within free interest period.

          • The latter. The bank is charging interest – presumably there’s not free-interest period (if there is, and you’re confident you’ll pay back, then that’s potentially fine). The credit card company is just charging an admin fee so islamically that’s okay.

  • Very interesting article.
    I am in the same dilemma as many of those who commented .
    Anology of Germy is interesting aswell however in barrowing is not important that not only we are able to pay full loan amount back but make sure what are the sources of income of lender(credit card company or lending bank) I.e are their business dealings are ethical or not ?

    Reply
    • We don’t have to worry too much about the source of funds because that is the concern of the credit card company. Similarly a shopkeeper can sell fruit to a loan shark if he wants to.

      Reply
  • Salam,
    What is the ruling on having credit cards where we are paying an annual fee?

    Reply
    • Our view is that is fine – on the basis that this is a simple service charge linked to the provision of the service as opposed to the loan.

      Reply
  • What about EMI (Equally monthly installments) with 0% markup bank offers for your credit card bill with a processing fee. Do we consider it as interest or we can avail it as a service.

    Reply
    • As long as its 0% interest and the processing fee is genuinely a processing fee, then our humble view is that should be fine. (But as ever, we aren’t in the market of giving fatawa!)

      Reply
  • faisal latif (Denmark)
    January 21, 2020 5:53 am

    Interesting article with some productive reviews. As per my understanding of using credit card in lights of Quran and Ahadees, Even you have no other alternates and you are signing a contract that agrees the extra payment in case of late payment is haram (Credit card). need your guidance and conclusive statement.

    Reply
    • As discussed in the article, these sorts of clauses are a fabric of the modern economy and the contracts we regularly enter into with other service providers, e.g. your phone, energy, etc companies will almost certainly have these clauses built in.

      Reply
  • I live in germany. Here, a credit card company gives 25/50€ if you refer a friend. Is consuming this money halal? Please reply with references.

    Reply
    • Good question. This would be accurately construed as a unilateral gift from the credit card company – there is no obligation for anyone to borrow off them. As such this is fine.

      Reply
  • At Times,Its very interesting to see how people say silly reasons to justify a Haraam and make it halal…

    As per the popular Qaaidah-Base of Fiqh,

    All Good deeds Are Based On Niyyah=Intention

    and

    All Transactions are based on their agreement…

    so if the Agreement consists of something related to interest,even if we pay the interest or not,it becomes Haraam.

    Simple

    Rather than guiding people towards haram so that they can live easily…

    hope you guide them towards halal,whicvh even if it is hard,while lead them to eternal happiness.

    Jazakallahu Khair

    Reply
  • Assalam Alaikum to all:
    I pray to Allah SWT for always guiding us in the right path. I do tend to agree to the similarity drawn here between late payment surcharge [or penalty] of a utility bill and late payment penalty of credit card dues. However, I would like to know about bank’s funding of the discounts it offers on various purchases, hotel and airline payments, etc. It’s said that this money is paid through bank’s marketing budget, and since the banking system as a whole is interest based, the beneficiaries of discounts also get involved in interest unknowingly. Your take dear Ibrahim.

    Reply
    • Where a bank is giving a gift – that’s usually fine.

      It isn’t fine however when it is giving a gift for you to sign up to its current account. Reason being that a current account is you actually lending money to the bank. Therefore it is paying you extra back – which is interest.

      Reply
      • Mofazzul Hussain Mondal
        February 21, 2021 6:38 am

        Salam Alaikum brother Ibrahim,

        I want to know that if we are using debit card/ prepaid card (bank in India and salary account. Salary account is basically a savings account but for our salaries to be credited by our employers.) while making a payment for air ticket, if there is a 5% discount for that particular debit card. Can we avail it or not?

        Reply
      • Asallaamualaekum warahmotuLLAH wabarakathu and Jazak ALLAHU Khair for you effort.

        This point raised is interesting and also of concern. Does this mean that the cash insentive bank give customers in UK for switching banks to thiers (e.g. halifax to nationalwide) is haram if the bank account is a current account?

        Reply
  • assalamu alaikum dear brother,

    I have this question which I didnt get answered in your blog which I would like to get answered here. I want to setup a bussiness and in order for my customers to pay me I need a credit card but I wont be using the credit on it is this permissible? thanks in advance ramadam mubarek

    Reply
  • Wasim Ahmad Khan
    May 10, 2020 6:33 pm

    Salam, I found the article really good at touching the fundamentals of why is something halal or Haram. However, I still think it is lagging slightly addressing the core part of the cards business. Essentially, Visa or MC act as intermediates in the transaction. They take money from buyer and pass it on to seller with a %age fees. In return they offer the infrastructure, security etc. Is this percentage Halal or Haram. If Halal, then wouldn’t the CC or those rewards that Visa gives out to buyer be also halal. How buyer pays back to Visa is a separate discussion not the core of CC business. Of course if buyer agrees to pay them in agreed time, every time it should be perfectly halal. Please let me know your comments on this.

    Reply
    • Salaam – I agree – I don’t think that is under debate. Transaction fees however are usually charged to the vendor not you the customer. However if you are charged – that is also fine.

      Getting rewards is also fine as they are wanting you to use their service.

      But borrowing off them and then paying them interest – that is where one needs to draw the line.

      Reply
  • Assalomaleykum
    Is finance a car with 0% halal?
    In what occasion it is halal, in what vice versa Haram?
    Thanks

    Reply
  • What about paying zakat or sadaqah on credit card? Would that be okay if CC is paid in full every month with no interest accrued

    Reply
  • Thank you so much for the beneficial article.

    I have a question, if I have online business / eCommerce and I set up my website on shopify. Then I set up the payments method that I can choose whether it’s debit card only or credit card only or paypal only or whether all of them.

    the customers purchase the products with their debit card or paypal or credit card. But most of the customers just want to purchase the products with their credit card. Is this permissible to take the money if they purchase products with their credit card?

    Jazakallah Khayr

    Reply
    • Yes that’s fine.

      Reply
      • I have a question I recently check one of my credit card account I have a pending payment of 32$ bank charges me extra fee of 25$ and 12$ Interest total 69$ Of balance I called my bank And told them that as a Muslim I don’t want to pay the interest they said we will remove the interest and Late fee as a courtesy if you pay the balance in full so I authorize them to deduct 69$ from my account and later that late payment and interest was credited back to my account so what does it means that I paid the interest or not and if I paid then what should I do with that 12$ interest I received back because I cannot dodge my self saying that I didn’t pay the interest by considering that they refund it back to me please help me out I am really worried about that

        Reply
  • Mohammed Thoufeek
    June 7, 2020 5:54 pm

    Assalamu Alaykkum , May Allah Bless you for the insightful article. I would be grateful if you can help me decide on a situation that I am currently in, that is, I want to buy a car and the price is 10000/=. A car is very important for me or else I will have to rent a car for a much higher price. Since I don’t have enough money to buy the car I have two options , one get an Islamic car loan for which I have to pay 4% more at the end of 36 months that is 10400/=. Option 2 is that I pay the car dealer the 10000/= by my credit card and the credit card company says they will convert this amount in to 36 month instalment with a handling fee of 3% so I end up paying the same 10400/= the Islamic bank offers but using my credit card is convenient and sometimes cheaper too since I might be able to get a discount from the dealer. Please help me decide as it would be very helpful for me.
    Just wanted to clarify that making payments on time to the credit card will not be an issue for me InshAllah.

    Reply
  • Hi

    I live in the UK and I am trying to build my credit rating in case of buying house in the future and I am planning to use Islamic bank for this Insha Allah – what I want to know is if prepay credit card is Halal

    Reply
  • Muhammad Ibrahim
    July 16, 2020 6:04 pm

    As Salamu Alaikum Wa rahmatullahi wa barakatuhu.
    My job is to sell water purifier,air purifier, security camera,vaccum cleaner,etc . I have to go to customer’s house for product demonstration and if they agree to purchase product then they can pay with net banking, credit card,debit card or on emi. If someone have to pay through emi product price gets increase and I might have to make an emi contract for customer with might include late payment charges and less possible it may include interest .Is my job halal?

    Reply
  • Salam, I want to go to university but as student loans are haram. Is it permissible for me to take out a loan of £9000 (yearly tuition fee) with HSBC for example who offer a 20month 0% APR.

    Reply
  • Thanks for the post..
    My job in a retail store involves promoting their own MasterCards and selling it. what’s the view on that..

    Reply
  • Assalamualaikum,

    For using credit card ,Banks are giving lot of benefits. What about that. Pls explain. We can use the Benefit of that. They are give vouchers , which can be used to buy electronics etc..

    Reply
  • Assalamualaikum,

    I work with a telecommunications company and we offer a credit card with no annual fee. As a manager there, we have quartley targets on how many people we get to get the credit card. Obviously the intrest only kicks in on a delayed payment. My question, is it permissible for me to sell?

    Reply
  • I work with a telecommunications company and we offer a credit card with no annual fee. As a manager there, we have quartley targets on how many people we get to get the credit card. Obviously the intrest only kicks in on a delayed payment. My question, is it permissible for me to sell?

    Reply
  • Assalamu alaikkum, Pls listen to sheik imran hussain bayan he said using credit card is haram, as we are using some one’s money and we should not sign for the contract which link with interest. Thanks to sheik imran hussain for this guidance. i have been using credit card since 10 years, but with the help of allah im returning my credit cards to bank as i do not want to be in this fitna. pls always use your money (debit card) in sha allah..

    Reply
  • Salam. Do you have any islamic articles about options trading?

    Reply
  • I want to get a credit card for some online purchases. If i will pay all dues on time, will it cause any interest amount? or is to have a credit card haram itself?

    Reply
  • The fact is that by signing the contract you are agreeing to paying interest if you make a late payment and I am worried because that’s really wrong, for me to agree to pay it even if I don’t delay a payment I shouldn’t agree to something that’s clearly been made impermissible right?

    Reply
  • Assalamu alaikum,
    Is it permissible to work as a employee in any credit card company(ex.visa,mastercard etc.)

    Reply
  • Hi there, interesting article! I’m planning on expanding a business that I have currently online and want to switch from debit card payments for inventory and marketing to credit cards to ease cash flow ( to borrow one day pay in full the next when the money is realised from PayPal/stripe holding etc.) I wanted to ask if this is something you would recommend doing and what credit cards offer the best rewards and the least amount of interest? Thanks in advance.

    Reply
  • Honestly, I have now major doubts over this page. Especially, Ibrahim Khan. He says most of the stuff are halal when especially the Quran says its haram. Regarding this topic, if you get into such a contract where you sign up to pay interest then that’s totally haram.
    Ibrahim khan excuse was that most of the contracts have interest wired in it. According to his thinking, we will start eating pig fat in foods because most foods have this ingredient in it. It’s totally lame, irresponsible and Jahil.

    Please watch Dr Zakir Naik comment on this particular topic.
    https://www.youtube.com/watch?v=IXGCmyJRFjc

    Reply
  • Assalamualaikum.
    Can I take a cash loan on my credit card, the bank is offering 90% of my credit limit, 0% Interest but 2% processing fee on the amount I take. My question to you sir is if the processing fee changes with amount can it be considered as processing fee and not riba? Can such loan be taken.
    Awaiting your reply
    Jazakallah khair
    Assalamualaikum

    Reply
  • sadeq ahmed kamel keewan
    May 8, 2021 12:26 pm

    Is the annual fee of credit card is Haram.
    I am paying on time , never missed payment.
    just using for offers and cash back and other benefits.

    Reply
  • Wasim Ahmad Khan
    May 25, 2021 4:44 pm

    Disclaimer: Please don’t put reliance on my previous comment as I don’t have a qualification to delibrate on the topic. The comment is just an opinion.

    Reply

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