Question (Arshad - India):

Assalamu Alaikum. I have a doubt regarding loans involving interest. My dad says such loans can be taken for essentials[like building our home. My cousin brother says that loans with affordable interest rates are halaal even if its not for the above said essentials. His sister says that islam had prohibited loans with interests because during olden times interest rates were exponentially high, so therefore there is nothing wrong in taking loans with small interest rates. Which is right?

Answer (DR. Monzer Kahf):

Wa `alaykum As-Salamu wa Rahmatullahi wa Barakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
My Answer:

Dear Br. Arshad,

Interest-based loans are not permissible in Shari`ah regardless of amount, rate and circumstances. taking interest or paying it at any rate or amount is one of the greatest sins in Shari`ah as the Qur'an and the Sunnah indicate. therefore they cannot be taken for any reason.

Of course we have the rule of necessity that applies to this prohibition like it applies to any other prohibition. Necessities always call for relaxing prohibitions. But we must remember that necessities mean something like life threatening or property destruction, so that many so called essentials may not represent necessities. We must also remember that Allah knows best and He cannot be cheated by a false claim of necessity.

Allah Almighty knows best.

Source : Islamonline.net