Islam’s Perspective and Law of Online Loan

Advances in technology which is currently very fast making everything in this world to be always connected with technology. The world that has been based on the Internet of Things (IoT) makes everything in life always connected to the internet.

Humans can now conduct sales transactions, establish relationships with relatives in very distant places, form virtual communities, to meet the needs of life other than that. Nothing is now independent of the internet.

One way to make ends meet is through debt. In this sophisticated era, many sites or applications have begun to appear that offer online loan services.

The practicality of a transaction that does not take much time and energy because they have to go to the creditor’s office to take out a loan is of particular interest to the community. However, transactions carried out without meeting each other also often encounter various problems.

Not infrequently, many Muslims also take loans online and often have problems with these online loans. Then, how exactly does Islam view this online loan? We will discuss it a little in this article, following its review. But, before that, you can also read this article effects of loan in Islam.

What is Online Loan?

In understanding, online loans are accounts receivable debts that are carried out online by utilizing electronic media connected to the internet, either through websites or applications. In other form, there are digital wallets and you can see the article of law of digital wallet in Islam.

Online loans have advantages in terms of practicality of the transaction. People who want to borrow funds do not need to bother to come to the lender’s office. They can save time and energy for it.

In addition, the necessary requirements are also uploaded in digital form so that it is more paper-efficient. Borrowers only need to fill in data and upload existing requirements. After that, the borrower is just waiting for the results of verification whether the borrower is entitled and eligible to get the loan or not.

In the case of bill payments, the borrower also does not need to spend cash and meet the lender. The borrower only has to pay via transfer and send proof of payment.

All transactions are carried out without direct interaction. This makes all borrower’s activities undisturbed. In addition, the borrower can also save time and energy to do other activities.

However, online loans that do not interact directly, can also cause various negative impacts or losses for the borrower. This will be discussed in the next point which is also directly related to online loan law in Islam.

How Does Islam Look at Online Loan Phenomenon?

If we talk about loans, surely one thing we will remember is the law about usury. However, this will not be discussed in this article. You can read it in reasons for the prohibition of riba in islam or the impact of riba in islam.

At this point, it will be conveyed about the risks that can arise if making an online loan. There are about six of these hazards, maybe there can be less with summarized or more because there are things that have not been delivered.

From these six risks later, we can find out exactly how the legal conduct of online loans. Here are six risks of making loans online.

1. High Interest

Online loans tend to have high interest rates compared to conventional loans in general. This is because of the high risks that can be obtained from online borrowers that may be lost at any time.

Thus, it is very mandatory for us to find out in advance related to the interest offered by online borrowers. If we do not want to ask first, it will make us avoid because of objections to the loan.

In fact, online lending companies also need the money, whether to pay their employees or just to cover losses from various other customers who do the same.

So, if you cannot afford to pay very high interest, even though online loans have transaction speeds, don’t take loans online.

2. Small Loan Ceiling

Online loans don’t usually offer large amounts of loans. Usually they only offer loans in small amounts but with substantial interest.

Online loans are not very suitable for those of you who want to need debt to open a business. So, it is better for you to borrow from a bank for a bigger loan and it is advisable to borrow at a sharia-based bank.

3. Personal Data in Online Loan Applications

Just like when we apply for loans offline, when we apply for loans online, we must fill in the personal data that we have. This is indeed very risky. Why is that?

It’s no secret that many people’s personal data have now become merchandise. Not infrequently many people trade personal data for their own benefit.

Thus, it must be absolutely certain that our personal data is not misused by the lender.

4. No Pay Loans Online, Collectors Come

Online lending does not mean that this form of billing will always be done online. If you make an online loan, it doesn’t mean that you will only be billed online either by email or text.

If indeed you make an online loan and cannot pay until the specified deadline, then you will also still be billed by other means. You can receive messages intensively either by email or text.

In addition, if the borrower is still unable to pay up to the specified deadline, the company lending the funds will also do the direct billing.

The lending company can use the authority that regulates credit in a particular area or use the services of certain people to do billing. So, don’t be complacent if an online loan will only be billed online, it needs to be carefully considered.

5. Billing Administration Costs

One thing that the borrower also needs to know is the billing administration fee. If the borrower is late in paying the bill, it does not mean that the company will just collect without additional costs.

When making a collection, the company will add human resources as a collection force, bear the decline in the value of the currency due to late payment, operational costs, and other costs.

Thus, to cover all these costs, the company will assign administrative costs to the collector as compensation plus interest and principal loans provided.

6. Online loans can be illegal

Companies that offer online loan features, whether through websites or applications, are indeed not necessarily legally registered. There are still several sites or online loan applications that are not necessarily legally registered.

The condition of online loan sites or applications that are still illegal indeed provides a greater risk, one of which is customer security is not guaranteed. Thus, it needs to be ensured that the website or application that provides the loan is really already legal.

To ensure online loan law in Islam, we can look at the applicable usury law. In addition, you can consider the six points above as a measurement tool for determining online loan law in Islam.

If these six risks do occur and are able to provide harm to the prospective borrower of credit, then online loan law in Islam is not allowed. This is because according to the word of God in the chapters of surah Al Baqarah verse 195 which reads

وَلا تُلْقُوا بِأَيْدِيكُمْ إِلَى التَّهْلُكَةِ

“… and make not your own hands contribute to (your) destruction …” (surah Al Baqarah verse 195)

From the above verse it is clear that God does not want His servants to throw themselves into destruction, including this online loan.

If indeed you feel you can not minimize or eliminate the existing risk, then it is better if you do not make loans online. This is because you are putting yourself into destruction.

For example, you cannot pay bills that have been approved in an online loan and keep you constantly being chased, get additional bills for administration fees, arrears, and much more. Thus, the more debt you will have and the more difficult it will be to pay.

On the other hand, if indeed you are able to minimize or eliminate the risks listed above, then you should still consider taking an online loan or not. You need to consider the legal basis of usury as well and your needs.

If you have considered the law of usury, a logical foundation of need, and consideration of its emergency, then the decision is up to you whether you want to borrow or not. You can also read the article that has same some point of views, rules of using credit card in Islam.

That was a glimpse of the law of online loan in Islam. Hopefully useful and can provide wisdom for us all. I hope, we always to be a wise people and can use our logic to make a decision with strong argument and always be a muttaqien for Allah. See you on the next article that full of wisdom. Wallahua’lam bish shawwab.