In my article Credit Cards: Halal or Haram? I mentioned that because opening a credit card requires one to sign a contract in which they agree to pay interest under certain circumstances, and because interest on debt perfectly meets the definition of prohibited riba in Islam, one should only open a credit card if having one is a necessity for them and they can find no alternatives.
I also mentioned that one should only use a credit card if they already have the cash to pay off their credit card immediately and they do so. Most banks will allow you to connect your checking account to your credit card so that balances are paid off immediately. By adopting this arrangement, you are essentially using your credit card as an intermediary between the cash in your bank account and the merchant you are buying from. As far as I can tell, this is permissible.
Are Credit Card Rewards a Form of Riba?
As it relates to the question of whether or not credit card rewards and cash-back are Riba, remember that Riba is a contractual requirement to return more than the principal to the lender.
When you use your credit card you are using the bank’s money to make your purchase, so you are the borrower. As such, when you receive credit card rewards, the lending bank is relieving you, the borrower, of part of your indebtedness.
For example, if you have a credit card that offers 3% cash back and you make a purchase with your credit card in the amount of $100, the bank is saying that instead of paying back the full amount you borrowed ($100), you only have to pay back $100 – $3 (because 3% cashback) = $97. So, as a borrower you are being relieved of part of your indebtedness.
There is nothing wrong with doing this in Islam. In Islam, lenders are encouraged to relieve the borrower from their indebtedness as an act of charity if the borrower is suffering financially.
Cashback Isn’t Charity
I think it’s important to point out the following, in that credit card companies offer rewards for two reasons:
1) They get paid every time you use their credit card, whether you pay interest or not, through the fees they charge the merchant you are purchasing from.
2) The more frequently you use your credit card, the more likely you are to carry a balance on it and, in turn, the more interest you are likely to pay.
Permissible Under This Condition…
I feel it is necessary to caveat the permissibility of credit card rewards by saying that if these rewards are causing you to use your credit card irresponsibly, that is, to justify using your credit card when you don’t have the money to pay off your balance immediately, then you should either take out a credit card that doesn’t offer rewards or opt to not have a credit card altogether.
There are few things I can think of that are more detrimental to your financial well-being than an ongoing credit card balance that you are paying interest on. Not to mention the sin of paying interest.
Muslim narrated in his Saheeh (1598) that Jabir (may Allah be pleased with him) said: “The Messenger of Allah (peace and blessings of Allah be upon him) cursed the one who consumes riba, the one who pays it, the one who writes it down and the two who witness it, and he said: they are all the same”.
If you live in the United States and you’ve made the mistake of accumulating a balance on your credit card which you are now paying interest on, you can stop paying interest and refinance with BFF Income Share Funding, we offer halal financing with income-based repayments designed to always stay affordable.