Are Overdraft Facilities in Bank Accounts Permissible?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
If you withdraw more money than you have in your bank account, the extra money you take out after your bank balance reaches zero is called an overdraft. An overdraft will allow you to borrow money through your current account. You might request one from your bank or your account may automatically offer you an overdraft (with your agreement).
Hence, overdrafts are loans from the bank to the customer. If the overdraft facility comes with a fee, such a facility will not be permissible as the fee is interest. If the overdraft facility is free, it is permissible to avail of such a facility.
If one has an account with an overdraft facility which charges, one should deactivate or cancel such a facility or switch to an account which does not have such a facility.
And Allah Ta’ālā Alone Knows Best
Mufti Faraz Adam al-Mahmudi,
The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any institutions to which he may be affiliated.
Arguments and ideas propounded in this answer are based on the juristic interpretations and reasoning of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another Mufti may reach different conclusions to the one expressed by the author. Whilst every effort has been taken to ensure total accuracy and soundness from a Shari’ah perspective, the author is open to any correction or juristic guidance. On the event of any juristic shortcomings, the author will retract any or all of the conclusions expressed within this answer.
The Shari’ah ruling given herein is based specifically on the scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Consideration is only given and is restricted to the specific links provided, the author does not endorse nor approve of any other content the website may contain.