Posted by: islamicfinancingnews | December 26, 2013

Islamic loans and interest rates: A quick overview

Even though you’re getting Islamic finance, you need to have a basic overview of how the entire system works. You’ll be getting a product that’s Sharia compliant, but it’s important to understand all you can about the interest rates that run the western style system you’ll be working with. It doesn’t matter whether you’re looking at Islamic loans for a commercial or residential enterprise, knowing something about the factors that influences these interest rates helps you to make the right decision overall.

For example, the supply of money coupled with the demand often works to dictate the interest rates. When there’s more people looking to borrow, the interest rates are high. Other factors are more under your control. A good credit score will affect the rate you pay when it comes to interest. That means interest ratesyou should always have a eye toward the things that can damage these scores like missed or late payments on loans or credit cards.

Watching the rate the government sets to lend money to the financial institution you’re going to borrow from is another good indicator of what you’ll pay in the end. Islamic finance is tied in many ways to more traditional western style loans and knowing the requirements and mechanics for each is important.

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