Nowadays most banks and financial institutions offer to a Homeowner loans, a choice of either a conventional loan or Islamic financing. What is the different between this two ? , the simple answer is that both are the same, except in a conventional loan, the purchaser will pay interest, and in Islamic financing, the purchaser will pay a profit.
A common home Islamic financing facility is offered under the Shariah principle of Al-Bai Baithaman Ajil (BBA). In BBA financing, a bank’s customer buys a property from the vendor under an agreement of sale. The bank then, at the request of the customer and with the consent of the vendor, steps in to become a party to the sale agreement by executing a novation agreement between them, making the bank now the purchaser of the property. The bank’s purchase price is described as the loan facility amount.
The bank will sells the property to the customer, at a price which consist of bank’s purchase price and profit margin.This agreement is always called Property Sales Agreement. In Islamic financing, bank are entitle to predetermined profit, so a customer will never have be worried about sudden increase in interest rate since it is fixed from the beginning. So the customer will pay the exact same amount for his monthly instalment.
The conventional banking financing approach, on the converse, merely deals in money and monetary papers only.
In a conventional loan, the customer will repay to the bank the loan amount, together with interest at the prescribed rate. The prescribed rate is based on a margin above the bank’s base lending rate (BLR), and both the margin and the BLR are variable from time to time. In a case of late payment or default, the bank is entitled to charge compound interests. Interest payable may also be capitalised and the capitalised amount will be subject to further interests.
So, this fluctuation rate make it such an Unsecured loans. The interest rate could be increase at any time. So before choosing the right loan, think wisely. For loan comparison, check at Cheap loans.