Answered by Ustadh Tabraze Azam
Question: Assalam alaykum
What is ruling on taking a loan by giving gold as security to bank but also paying some amount to the lender/bank till the debt is cleared?
Answer: Assalamu alaikum wa rahmatullah,
It is permissible to give a guarantee or collateral (rahn) to the creditor if he asks for it, regardless of whether the creditor in question is a bank or otherwise. This is not a form of usury (riba), but merely a form of financial security to cover any potential losses borne by the creditor in the case that the loan is not paid back.
Taking such a loan would be permissible as long as (1) it is interest-free, and (2) there is nothing otherwise legally impermissible about what you are doing.
[Maydani, al-Lubab fi Sharh al-Kitab (266)]
[Ustadh] Tabraze Azam
Checked and Approved by Shaykh Faraz Rabbani
Ustadh Tabraze Azam holds a BSc in Computer Science from the University of Leicester, where he also served as the President of the Islamic Society. He memorised the entire Qur’an in his hometown of Ipswich at the tender age of sixteen, and has since studied the Islamic Sciences in traditional settings in the UK, Jordan and Turkey. He is currently pursuing advanced studies in Jordan, where he is presently based with his family.