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149437: Ruling on getting a loan from the bank in order to pay off a debt owed to another bank


I have a loan from bank A, in which I have an account into which my salary is paid. Another bank offered me a loan and said, we will give you an easy-payment loan easy, with a low interest rate; we will give you the money and you can give bank A cash, thus lowering the interest rate for you, on condition that you transfer your salary to our bank. Is it permissible to transfer the debt? Please advise me, may Allah reward you with good.

Praise be to Allah.

There is nothing wrong with getting Islamically acceptable financing from any bank in order to use it to pay off a previous debt to another bank. What is forbidden is to use it to pay off a debt to the same bank, because that is a kind of trickery, which is haram. 

Islamically acceptable financing is tawarruq [tawarruq means buying a product and deferring the payment, then selling it for payment on the spot to someone other than the person from whom you bought it for a deferred payment, in order to benefit from its price] by buying shares or a car, for example. As for tawarruq organized by the bank involving a commodity such as rice or metals, that is not permissible. This has been discussed previously in many answers. See the answers to questions no. 117761, 100324, 46564, 106507, 95138, 129649 and 133947

If the financing is Islamically acceptable, then there is nothing wrong with transferring your account to the (new) bank, because it is a means of protecting the bank’s rights so that they can deduct the money from the salary before depositing it. 

It is a mistake to describe financing by means of tawarruq a “loan”; if the transaction was in fact a loan, it would be haram for the bank to take the profits or interest, because in that case it would be riba-based or usurious interest. 

But if the second bank is going to pay off your debt to the first bank and charge you interest in return, then this is riba which is forbidden by Allah and His Messenger. 

You should show the format of the contract with the bank to a trustworthy scholar before getting involved in this transaction. 

And Allah knows best.

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