What are Islamic home loans?
A normal home loan in Australia would loan you money then you will be charged interest and everything and you have to pay it. Islamic bank in Australia or Islamic finance works little different in this kind of loan the property will be purchased by the bank, then the client or you have to pay rent in which some portion will go to the purchasing of that property. Through this, after some time you become the owner and you get the property for yourself. Basically charging any kind of interest or earning from it is not allowed in Islam thus Islamic bank loans are a great way for Muslims to get loans for them. Visit Ijarah Finance to know more.
How does Islamic finance work?
Islamic Bank Home Loan works on 3 core principles that make it very different from normal loans:
The first one is that charging interest is not allowed instead of that the Islamic Bank in Australia must earn profit through some kind of services.
The second principle of Islamic finance is that one must work for profits, and that money itself cannot earn more money. For this reason, Sharia law prohibits interest being charged on home loans, which is a core principle of property finance. This means there is a different process for Muslims to get a loan that is in line with their religious beliefs.
High degrees of risk are also prohibited under Islamic finance, and all possible risks must be identified to investors clearly.
The third and final core principle of Islamic finance is only ethical causes or projects can be invested in, ruling out anything such as weapons, adult entertainment, or gambling. This causes Islamic banks to be socially responsible, something that some Australian banks can definitely improve in.
Are Islamic loans expensive?
Yes, Islamic Bank Australia loans are expensive as there is expensive as a lot of paperwork to handle and also there is not much competition in Islamic banks as they are few in number.
What are different types of Islamic home loans?
Islamic Bank Loans can be divided into 5 basic types:
- Murabaha: Islamic banks in Australia purchase the property for you but will sell you with a profit. You just have to pay monthly rent without any interest.
- Mudaraba: In this kind partner lends money to each other and then shares a certain responsibility.
- Ijara: When someone chooses this Islamic Bank Home Loan then the bank purchase the property and puts it on lease. And then it will transfer the ownership once the tern ends.
- Musharaka: In this, the bank and you both buy any property together, and slowly you can buy the share more and make the bank share less.
- Wakala: The Islamic Bank Australia becomes your agent, allowing them to use your money to invest in sharia-compliant trading activities.