Is an overdraft riba?
Going below zero means the bank has lent you money. What it charges for that decides the ruling. A charge that rises with how much you borrow or how long you take is interest, however it is labelled.
The guidance
My bank lets me go below zero. What does it charge?
- Interest, or a charge that grows with how much or how long I’m overdrawnHaram · Riba · Qur’an 2:275An overdraft is a loan from the bank. A charge that rises with the amount or the time is an increase on a loan, which is riba even if the bank calls it a fee.Keep a buffer so you never go overdrawn, or use an account that simply declines payments.
- No interest, and at most one flat fee that covers the bank’s real costHalal · A loan · Qur’an 2:279A loan repaid with nothing added is allowed. One fixed charge that only covers the bank’s real cost, and does not change with the amount or the time, is not interest.Scholars require such a fee to match the real cost. Anything above that counts as riba.
People also ask
My bank charges a fixed monthly fee for an arranged overdraft. Is that halal?
Only if it is one flat charge that covers the bank’s real cost and does not change with the amount or the time. Most arranged-overdraft fees are priced by the amount or charged per day, which makes them interest.
I went overdrawn by accident and was charged. What now?
Repay quickly and avoid it in future, for example with a buffer or an account that declines payments instead of lending. An accidental charge is not your sin in the way a chosen interest loan is, but do not rely on the facility.
Is a student overdraft at 0% halal?
A loan repaid with nothing added is halal. Check the small print for charges that start after a certain limit or after graduation.
Related questions
All questionsThe four schools on riba
This guidance follows the Hanafi school as applied today by Mufti Taqi Usmani and the AAOIFI standards. Notes mark where the Maliki, Shafi’i or Hanbali schools differ. The four schools on riba →