Credit Cards

Credit Cards is a very convenient method of making purchases without carrying cash. This convenience has has caused their proliferation, and almost everyone has one.The way a normal credit card works is that you make purchases using your card and the bank issuing the card will pay on your behalf to the merchant providing you the product or service.The bank deducts a certain percentage (2.5% normally) from the merchant in return for processing the transaction and adding the money to the merchant's account.From the customer side (the card holder), he is given a loan for that amount and given a grace period (normally 26 days to a month) to repay the amount interest free. If the card holder decides he does not want to pay the full amount, he pays the minimum (printed on the monthly statement), and the rest of the unpaid balance gets deferred in the form of a loan with compound interest.Many consumers have gotten used to this, and use the card asa loan machine.Apart from being convenient, credit cards offer other benefits,such as frequent flyer miles, donations of a certain amount orpercentage to your favorable charity, consumer protection (canrefund the price of a faulty product), extended warranty, ...etc.All depending on the specific card in use.The largest issuers of Credit Card worldwide by far is VISA followed byMasterCard. Thereare lots of others as well, including Diners Club, American Express,Disover (USA only), JCB (Europe), and others.There are certain services that one cannot get without a Credit Card,including Car Rentals in North America, and many internet services.Another feature of Credit Cards is that you can get Cash Advancesusing it at bank outlets and Automatic Teller/Banking Machines (ATMs/ABM). This is treated as a loan, and interest is to be paidon it. Therefore a Muslim should avoid this, unless it is anemergency, where such an exception would be premissible.In short, this has become a very pervasive aspect of our modern life.For the Muslim, a Credit Card can be had, but extreme care must betaken not to be late in paying the statement balance in full, so asnot to incurr interest. If you travel on a regular basis, you maymiss a statement, so maybe you want to talk to your bank about thisand explain that you travel and make other arrangements.Also note that because you are paying during the grace period on aregular basis, you will eventually be "flagged" as an unprofitablecustomer to the bank (you use their money for a month, and generateno interest revenue for them). There has been reports of some CreditCard Issuers in the USA asking customers to pay an annual fee to compensate for this "loss of revenue". If this is the case, findanother credit card company to do business with, there are toomany of them.Further reading

  • We have a section on Debit Cards, explaining the difference between them and "regular" Credit Cards.
  • An article on Credit Cards at the Islamic Halal Finance site.
  • An article (no longer active!) dated 31 March 2000, by Suraya Abdullah in IslamiQ Finance Daily (out of business now) discussing the various opinions for and against credit cards for Muslims. The article tends to favor the opinion that Credit Cards, in their conventional form, are prohibited, even when you pay during the interest-free grace period. Also discusses a survey in the U.S.A. by AMIN (American Muslim Investment Network) for the possibility of issuing Islamic Credit Cards.
  • Shariffa Carlo, an American convert to Islam, has written an article on Credit Cards. She seems to think it is not allowable, but then again, many scholars have allowed it, provided that you pay in full your balance (no interest is incurred).

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