Repaying a loan along with a fixed percentage to cover its costs

6-1-2010 | IslamWeb

Question:

Am intending to do a business of loaning money to family and close friends. The terms are repayment in 4-6months together with 10% more of the loaned money. this is to cover for the logistics involved, e.g lawyers charges, drawing a loan contract. There are no guarantees involved in this loaning. Is this considered as interest. Jazakallahul Kheir.
Answer:

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad sallallaahu `alayhi wa sallam ( may Allaah exalt his mention ) is His slave and Messenger.

 

Lending money with the condition that you mentioned in the question is not permissible because it is a loan that brings a benefit (to the lender) and this is forbidden as we clarified in Fataawa 90508 and 124875. There is no difference in this between relatives and anyone else.

However, if the loan is concluded without the condition of the interest, then it is permissible for the lender to oblige the borrower to pay the fees and costs of paying back the loan if any, but these fees should be a fixed amount according to the real expense so that it would not be a camouflage for interest [Riba].

Allaah Knows best.

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