What is the Difference between Sharia and Conventional Loans?

Actually, the Islamic and conventional loan system is the same where the bank provides a number of funds to the customer to be used as an urgent need that must be resolved immediately.

But there are still differences between conventional Islamic loans. At least in terms of money receipts as well as the transfer system the refund remains the same. In addition, the conditions given are the same starting from full identity and additional documents.

Credit card issuance

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Even the credit card issuance remains the same where both Islamic and conventional have annual fees. Although not clearly visible, both are different and the first factor is seen in terms of the contract and also the level of legality. This is the main key why conventional is so different from sharia.

When applying for a loan, there is a system of agreements that involves a financial institution with you as a customer. However, the agreement was named with the contract and through certain signatures.

The contract made by both parties must be halal, such as profit-sharing rent, sale, and purchase and there is no usury system in it. Usury is interest. In a conventional system.

Every loan whether using collateral or not will be charged interest that must be paid every month with the nominal loan funds. Interest often burdens borrowers of funds because they have to pay more than the actual amount. But in the sharia system, there is no interest at all.

Borrowers will not be charged a calculation of the amount of interest that must be paid together with the nominal debt.

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Interest in the sharia system is considered haram because it is difficult and burdensome to the borrowers so that in Islamic law, interest in loans is called haram.

As a substitute for interest, a profit-sharing system is obtained from the borrower to the bank as the provider with an initial agreement on the amount of funds to be shared by both parties. Here all decisions are made purely by two bound parties without the slightest coercion.

Furthermore, differences also exist in the organizational structure of the bank where the sharia bank is overseen by the DPS or Sharia Supervisory Board in each structure so that there is no misuse of funds. All products released including the operating system are fully supervised by DPS to comply with sharia principles.

DPS is placed on a par with the board of commissioners and determined by the GMS or general meeting of shareholders and renewed annually. DPS like this cannot be found in conventional bank systems because it uses the services of financial authorities to oversee without the existence of sharia principles.

Types of businesses to be financed by conventional and sharia banks

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The types of businesses to be financed by conventional and sharia banks as lenders are also different. If the conventional bank will provide a loan for any purpose as long as the requirements of the customer are complete, this is different from the Islamic bank which provides a rule that loans can only be used for business that is lawful and does not violate religious and legal norms.

So if for example, you want to open a business that is identical to bad things from the immoral house, offline gambling and so on, then the bank will not pass your submission.

Another difference is the work environment around the bank where if you visit the location of the Islamic bank, then you will feel a different feel from before. Islamic nuance will be felt starting from the way employees dress, behave, be ethical even to customers.

All services to be obtained adhere to spiritual principles so that customers feel highly valued and appreciated for credit applications.

In the sharia system that is carried out, both parties do prioritize profits but it applies to happiness as well as prosperity in the world and the hereafter so as to create a sense of kinship that is so close even though it still has their respective responsibilities. While conventional banks only make or form a partnership with the debtor and creditor systems.

By knowing the difference between conventional and Islamic loans, you can add a reference to choosing to apply for a conventional or Islamic loan.

What is a Borrower and Lender

Often, in the loan sector, there may be an amalgam of terms that confuse the end customer. It does not hurt to have a minimum financial culture and to be able to distinguish such important concepts as borrowers and lenders, how are they different? We tell you!

Both are the two most important agents that act when establishing a contractual relationship through which a person, whether physical or legal, is requesting a financial loan for a certain amount of money. Or what is the same, without lender there is no money to lend, and without borrower that process called loan is not closed.

What is a lender?

In general, a lender is the person who gives money on a loan . And the loan is the contract that is established between him and the borrower with a series of conditions where the second agrees to return the money to the first. The lender will charge an interest along with the return of said money within a certain period.

It is important to emphasize that to be considered someone a lender – this person understanding a natural or legal person – must charge interest for this operation . Otherwise, if someone gives or gives money to someone and does not charge interest, they cannot be considered a lender.

There are three types of loans: individual loans, non-bank loans and bank loans. Bank loans, as the name implies, are those provided by financial institutions where their services and products have such loans.

On the other hand, there are non-bank lenders, an alternative to traditional banks and that are increasingly being imposed more regularly. They are made by private individuals and lend their money through participatory financing platforms such as crowdlending. A competition to banks and whose funds come entirely from private investors.

And finally, we find individual lenders. They request a guarantee to guarantee the repayment of the loan. Offering money to both companies and individuals. There are also commercial lenders and non-commercial lenders, although less common.

The former dedicate their commercial activity to the granting of loans, obtaining benefits for the commissions charged for these services. While non-commercial lenders do not engage in this activity as the main one, but it is a secondary nonprofit activity without the intervention of a financial entity, whether banking or not.

What is a borrower?

What is a borrower?

The borrower is the person who takes that money borrowed in this operation called “loan.” The borrower signs a contract whereby he undertakes to return the money to the lender paying certain interest along with the return of the borrowed money.

Whichever lender has lent you that particular amount, the borrower will always be backed by laws and regulations, although of course you must also follow a series of obligations. All this must be included in the aforementioned commercial contract where the agreement between both parties is initialed.

In this contract, certain information must always be clearly and perfectly identifiable with the conditions related to the borrower’s rights. Among them the possibility of canceling it in less than 14 days or early repayment.

The borrower will always have the right to receive the contract documentation, proof of payment, settlement documents, the right to consult the CIRBE and check the outstanding debts and, of course, have the requested credit within a certain period.

But of course, the borrower also has a series of obligations such as paying the interest on the loan without delay, returning the capital that has been lent to him in the installments and determined terms , using it for the cause for which it was granted and informing who grants him the loan of his economic circumstances so that it analyzes the risk and solvency of the operation.

In Good Credit we are your trusted company when requesting a loan

In Good Credit we are your trusted company when requesting a loan

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