In Islam there are 3 kind of loans
- A Qard hasan – this is an interest-free loan (your mum might lend you £500 to buy something but you have to pay it back).
- a murabaha loan – This is where you ask someone else to buy an asset for you and then buy it off them for a marked-up price. So a bank could buy you a £100,000 house. You then buy it off them for £120,000 but tell them you will pay it back slowly over 5 years. You now own the house, but are in debt to the bank.
- an Islamic mortgage – this is strictly speaking not a loan as you are “renting” the house from the bank rather than paying interest. However you are in a long-term contractual agreement with the bank to buy their portion of the house off them and have to pay rent all the while. So economically this can feel like a loan.
You can compare the Islamic mortgages available in the UK here.