Loan with no iterest but with one time processing fee

Answered according to Hanafi Fiqh by
I am offered a loan for a tenure of 6 months without interest but one time processing fee of 1 percent and also Monthly EMI is flexible [i.e. I need to pay at least 5% of the outstanding amount]. Please let me know whether it is permissible to take this loan as there is no interest.
If this loan is haram due to processing fee, can i pay the processing fee from the interest i get from my saving account. I am in badly need of money, have tried asking my friends before thinking of this loan. Please provide the clarity.

بسم الله الرحمن الرحيم

(Fatwa: 1162/738/L=1434)

In the above mentioned non-interest loan as you have not to pay interest hence you are allowed to avail this facility. If the institution which gives the loan takes some fees as service charge it is allowed to pay it and due to it the original loan shall not be termed as interest based loan (Ref: Ghair Sudi Bankari, p. 202-208). It is not lawful to pay the fees from interest money.

Allah knows Best!

Darul Ifta,
Darul Uloom Deoband

This answer was collected from the official ifta website of Darul Uloom Deoband in India.

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