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Home Loans, Does It Include Riba?

Home Loans, Does It Include Riba?

Do home loans include riba? Then what about a Muslim who wants to own a house in this way? Let’s peel it thoroughly with strong (strong) arguments.

Along with the rising trend of house prices, many people find it difficult to buy a house in cash. Not a few people have taken a solution by buying a house on credit or known as a Home Ownership Credit (KPR).

Unfortunately this method is considered to violate Islamic law because there is an element of riba. Is that right?

Home Loans Include Riba

Before answering the question of whether home loans include usury, let’s get to know more closely what a Home Ownership Credit (KPR) is. KPR is a financing or loan facility provided by the bank to home buyers within a certain period of time with a certain amount of interest.

In the KPR scheme, the bank provides loans to its customers to buy a house. Then the customer will pay the loan in installments according to the agreed tenor.

There are at least 3 parties involved in the KPR scheme, namely banks (financial institutions), developers (sellers), and home buyers (customers). With the following scheme:

1. After completing the administrative requirements (Family Card, Identity Card, Salary Slip), the customer pays an amount of Down Payment (DP) to the developer. For example 30% of the price of the house.

2. The customer applies for mortgage financing to the bank. The value is equal to the remaining unpaid house price, for example 70%.

3, The customer pays for the financing or loan until it is paid off, accompanied by interest.

4. The house purchased is used as collateral (anggunana). If the customer cannot pay it off, he will be subject to confiscation, whereas if he is late, he will be fined.

Based on this scheme, do home loans include riba? Yes, KPR contains riba and is included in the category of haram according to Islamic sharia, for 3 reasons:

1. There is Riba

When customers do muamalah with banks, usury occurs. Riba is in the form of addition to the principal of the loan or better known as interest. The scholars have agreed that any additions contained in the loan contract (qardh) are usury and are unlawful.

Imam Ibnul Mundzir being one of the scholars held this opinion, “The scholars have agreed that if the lender requires (the recipient of the loan) one-tenth of the value of the loan in addition or as a gift, then he gives a loan with these conditions, then taking the additional loan is riba?” (Ibnul Munzir, Al Ijma, p. 109).

Similarly, Imam Ibn Taimiyah has the same opinion, Scholars have agreed that the lender (qardh) if it requires an addition to the loan  (qardh) then the addition is unlawful.” (Majmu’ul Fatawa, Juz 29 p. 334)

There is a loan agreement (qardh) in the KPR scheme. Any addition to the loan is usury and the law is haraam.
2. Making the object of sale and purchase as collateral

In KPR, the house as an object of sale and purchase is used as collateral (rahn) by the consumer. According to sharia, the activity of pledging goods that are traded (rahn al mabi’) is prohibited.

This is based on the opinion of Imam Syafi’i quoted by Ibn Qudamah in the book Ar Rahn., “If 2 people buy and sell with the condition that the goods purchased are collateral for the price, then the sale and purchase is not valid. This was said by Ibn Hamid and also the opinion of ‘Shafi’i. Because the goods purchased when required ‘are guaranteed (rahn),’ meaning it has not yet become the property of the buyer”(Ibn Qudamah, al-Mughni, 4/285, Kitab ar Rahn)

Imam Ibn Hajar Al Haitami also has the same opinion, “Unlawful sale and purchase on condition that the goods purchased are guaranteed.”
(ibnu Hajar al Haitami, al Fatawa al Fiqhiyah al Kubra, 2/2790)

Likewise with the opinion of Imam Ibn Hazm, “It is not permissible to sell an item on condition that the item is used as collateral for the price. If the sale and purchase is already over, it must be canceled (fasakh)” (Ibn Hazm, al Muhalla, 3/417, issue 1228)

3. Fines or Penalties apply

In the KPR scheme, the bank imposes fines or penalties on consumers who violate the Credit Agreement (PK). For example, when a customer is late paying installments per month. Likewise, when a customer wants to pay off the remaining installments earlier than the agreed time.

If examined further, fines or penalties include riba. Because this is an addition to the principal of the loan. So according to sharia fines or penalties on mortgages are unlawful.

Home Loan Does Not Include Riba

One of the reasons for usury when it comes to home loans is because of the additional principal on the loan. It’s different if the house loan is done with a credit sale and purchase contract. This is permitted by sharia. In fiqh, this activity is known as al-baibi at-taqsith or al-bai bi ad-dain or al-bai’ li-ajal.

The principle of buying and selling credit is the delivery of goods or objects of sale and purchase from the seller to the buyer at the time of the contract, with delayed payments. These payments can be made all at once at one time or in installments over a certain period of time.

In buying and selling credit, credit prices are generally more expensive than cash prices. In addition, usually buyers of goods on credit are asked for a certain Down Payment (DP). For example, the seller sets the selling price of a motorbike at 20 million for cash payments and 26 million for credit payments. With a DP installment of 6 million.

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Credit buying and selling activities like this include things that are permissible in sharia. Jumhur scholars from four schools of thought, such as Syafi’iyah, Malikiyah, Hanafiyah, and Hanabilah allow buying and selling credit. Even though the seller sets the credit selling price more expensive than the cash price.

The permissibility of this activity is based on general arguments, such as the word of Allah SWT, “Even though Allah has justified buying and selling and forbidding riba” (Al Baqarah 2/275)

The word buying and selling (al bai)  above is general in nature. Buying and selling credit is one of them. This is reinforced by the history quoted in Hisyam Barghasy’s book., It was narrated that Thawus, Al-Hakam, and Hammad said that there is nothing wrong if the seller says to the buyer, ‘I sell cash to you at that price, and I sell credit to you at that price,’ then the buyer buys at one of the two prices. (Hisyam Barghasy, The Law of Buying and Selling on Credit (trans.), p. 75)

Conclusion: Do Home Loans Include Riba?

To answer the question “does home loans include riba”? So the answer is yes if the contract being executed is a loan. Any addition to the loan is usury and the law is haraam. This happens when taking a mortgage with financing from a bank.

Home loans do not include usury if the contract being executed is a sale and purchase of credit. The seller hands over the object of sale and purchase at the time of the contract with payment in installments.

Wallahu a’lam.