How to Get Cheap Car Loan Rates

Acquiring a new or a used vehicle is a tedious process. There seems to be a catch to most of the car loan rates. It is vital to be careful when one decides to go ahead. Some of the important tips to be kept in mind are as follows – One should opt for providers who offer direct lending. In this case, there is no reference to the local dealership matching one with the loan. Customers are cash buyers.

Direct loans, dealer referrals, lease financing are some of the choices one has. It is best to choose a vehicle, which is budget friendly after balancing the pros and cons of leasing or purchasing. Once the auto loan company is selected, it is then important to decide on the timing of the purchase which ideally should be at the end of the month. Car dealerships have contests, which at the end of the month allow customers to be able to negotiate better rates deal.

Dealing With Good And Bad Credit

Good credit rating is the next key step. One should be careful while revealing the price one has in mind. The first offer should never be accepted. This process works well for good credit customers. But there are lots of people with bad credit due to missed payments. It is tougher for them to get a finance but not impossible. Sub-prime loan lenders and hard money lenders are the two sources for bad credit people. They charge a higher interest and provide customized finance for your vehicle. Credit rating can be improved by having a report of one’s credit report, keeping all current bills recent, paying all bills on time and not taking more than one loan at a time. Bad credit financing involves extra charge to the acquisition of a new or used vehicle and can help one to build credit history.

Whether one has good or bad credit, it is necessary to evaluate the options and compare rates and terms offered by different companies. Once the car has been chosen, it is good to give a large down payment since that is interest free. Depreciation is a factor which plays its part here since the value decreases with depreciation. To avoid rapid depreciation it is good to put down payments of 20% to avoid an upside down loan. The loan should be stretched to not more than 60 months. This allows for lower interest payments to the right degree. A useful tip here is to buy a used vehicle since even though their value depreciates; the value lasts longer than that of the new car.

Auto car loans are nowadays a bundled offering. Insurance, maintenance and warranties are included. Lease plans are also available even though they are not very popular now. The advantages are that they keep the upfront payment and monthly payment low. At the end of the term, one can purchase the car or exchange it for another. This is possible through the refinancing car loans. This is worthwhile for people who like the newest models of cars.

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How Blank Check Auto Loans Can Make Your Car Loan Process Easy?

Buying a car is a dream of all. It is the next best expensive purchase after a house. It needs a lot of money and not many people have huge amount of cash with them. So, the easiest way to get a car is a car loan. Lenders easily offer affordable car loan options for buying a car. Blank check auto loan is one of such loan and it has definite advantage over others.

A blank check auto loan is easy to understand. When you apply for a car loan with a lender, he will study your car loan application. If he perceives you to be a less risky borrower, then he will offer you blank check auto financing. It means he will give you a blank check with a specific spending limit. When you find the car of your choice, you can fill the amount and buy it.

Benefits of a Blank Check Auto Loan

Keeps You In Budget
The blank check auto financing is approved by the bank or the financial institution before you visit the dealer. The major benefit is that you know the accurate amount of money that you can spend. This helps in choosing an affordable car. Also, the lender provides you exact rate of interest and the term of loan for paying it off. Therefore, it will help you to make a proper budget.

Helps You Avoid Unaffordable Auto Loan Options
This kind of auto loan helps you avoid situations in which you are forced to get an unaffordable loan. When you have a blank check in your hand, car sales persons will stay away from offering you high interest car loan deals. Also, there will be no question of rejection of auto loan application after the things have been finalized with the dealer.

Negotiation Power
It gives you the power to negotiate. You will be in a position to choose the car of your choice without the worry of financing. It will also give you the power to negotiate money and other car loan terms and conditions with the dealer.

What Car Details Are Required By The Lender?

The lender is giving you a blank check auto loan. But, that doesn’t mean he won’t ask for car details. A car is used as collateral and he may repossess it if you miss out on payments. So, it is important that he knows all about it. He will ask all car related information like the car make and model, its VIN or Vehicle Identification Number, year of its manufacture, odometer reading, car title, etc. So, whenever you set out to buy a car, don’t forget to know everything about it.

How to Get Instant Approval for a Blank Check Auto Loan?

Credit Scores
Credit history is an important factor when it comes to blank check car loan approval. If you want a loan at a lower rate of interest, you must have a good credit score. Delayed payments on your credit report won’t be good for you. So, it is better to improve your credit score before applying for blank check auto loans. Make on-time payments for at least six months before filing a car loan application. This will help you improve the score.

Search and Negotiation
When you choose a such loan program, it is important that you look for different lenders who can provide various car loan quotes. It helps in comparing and choosing the correct program and also to stay within the budget. Don’t forget to negotiate with the lenders so that you get the best deal.

So, that’s how you can get a blank check auto loan for your next car purchase. If you can secure such a loan, it will provide you great ease in completing the entire car loan process.

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How to Qualify for Car Loans After Bankruptcy?

Chapter 7 or Chapter 13- Every bankruptcy is a very challenging situation. It causes embarrassment and financial troubles but it doesn’t mean that you cannot buy a car. Many people think that they will never get auto loans as bankruptcy ruins credit scores. Thankfully, this is not true. Post bankruptcy auto loans are a boon for borrowers who have just come out of bankruptcy.

A bankruptcy stays on your credit report for ten years and so, it has such a huge impact on car loan approval chances. It is for this reason that you must work strategically in order to get a car loan. The key is to reduce the lender’s risk. If you are successful in lowering the lender’s risk, he will easily offer you an after bankruptcy auto loan.

How to Get Car Loans after Bankruptcy?

Patience is the Key

You filed for bankruptcy because you were unable to pay-off your debts. You certainly don’t want to get a car loan with unbearable monthly payments. So, you must have patience in getting an after bankruptcy car loan.

There are many lenders who offer auto loans to people in bankruptcy. But, they often charge high interest rates. So, it is best to opt for car loans after coming out of bankruptcy. Once you have discharged bankruptcy, you get the opportunity of availing car financing at reasonable rates. You can lower your rates by waiting for two to three months. During this time, you must concentrate on increasing your credit score.

Employment and Income is Important

When the lender is ready to overlook your bankruptcy and bad credit score, he is taking a risk. If he considers your car loan application very risky, he will not offer lower interest rates. But, there is a way of reducing his risk.

If you have a stable job and regular source of income, the lender will be assured of regular monthly payments. This will help you secure a post bankruptcy auto loan without much difficulty.

Lenders also consider your income as an important factor for approving your post bankruptcy auto loans. If you are able to pay your expenses and still save, you will be able to make easy monthly car loan payments. So, lenders ask for sufficient income and a decent debt to income ratio.

Search for Lenders That Offer Car Loans After Bankruptcy

Traditional lenders and banks shy away from borrowers with post bankruptcy because they are considered a huge risk. There is no point in applying with those lenders who are going to reject your car loan application.

So, research and then choose your lenders. Apply with those lenders who are experienced in offering after bankruptcy auto loans. You can even go for online auto lenders. There are many online auto financing companies that offer affordable auto loans. They even offer auto loans after bankruptcy because they have a wide network of lenders and dealers.

Inexpensive Car

When you have a just come out of bankruptcy, you mustn’t buy a new car. A new automobile is costly and will increase your car loan amount. Instead, choose a reliable used car. Don’t forget to get it checked by your local mechanic.

Put Money Down

When you make a substantial down payment, you reduce the car loan amount and the lender’s risk. This prompts the lender to offer you lower interest rates and instant approval. So, start saving money for down payment. Usually, 10% -20% of the total cost of the car is enough. But, there is no harm in going for a higher amount.

Co-Signer Can Help You

Getting someone with a good credit score to co-sign your car loan contract reduces the lender’s risk to a considerable extent. Find someone who is ready to co-sign your after bankruptcy auto loan. A co-signer can be anyone from your parents, friends, or relatives.

All these points will definitely improve your chances of getting approval on auto loans after bankruptcy. These points will help in reducing the lender’s risk which means you will get reasonable interest rates.

A post bankruptcy car loan is a perfect way of buying a car. It will also assist you in building your credit score after bankruptcy. So, it is important that you take a well-thought decision.

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Detailed Information On Financing Car Loans

While financing car loans the main aim of every individual is securing cheap rates and the best deal. If not handled with dexterity, a worthy case can get spoiled but a little cleverness can promise a favorable deal in an average or below average case. It depends on how you make the rules facilitate your particular situation.

The Right Way To Go About Financing Car Loans

It is important and very well known too that the credit worth has major impact on the kind of finance deal one gets. There is no reason of anxiety for those who have picture perfect financial background. But all others must work on removing any blemishes that are there on their records by bringing their credit cards debit balance to a minimum and avoiding late payments, skipping dues, incurring further loans and bouncing checks. A mere six month long sparkling record will get them better car financing schemes.

Having no credit history is a more tricky case, as there is no record of your repayment capacity. You can build one by getting a credit card and maintaining a good record for at least six months or by getting a co-signer. The latter is a person who has a good financial history and is willing to act as your security. So actually you ride on somebody else’s good record.

Then, it will be immensely good if you can get pre approval for car loans before you go shopping for a car. With this you will not only know beforehand which model falls into your range but also you will be able to negotiate the car price. Also, it reduces the extent of paper work that is involved to almost half while finalizing an agreement with the car dealership. Next, don’t get too excited by zero percent financing schemes because they ask for a perfect credit score with a total payment payoff in three years.

Again, it is no secret that financing car loans online can get you low interest due to more competition. The rates that market dealers charge are always two to three percent more than what is being offered online. If it is an authorized online lender then have no fear in sharing information and asking for finance.

Another way of getting low interest auto loans is selecting the secured credit option. The usual practice is placing the same vehicle, on which you are asking a loan, as collateral but you can provide any other asset too. Because the lender’s money is secured so he agrees on low rates too. Any payment default and he has the right to seize your vehicle.

Lastly, you can also save money if you select automated monthly reduction as your repayment mode. Every month on a fixed date your loan installment will be automatically deducted from your account. You won’t have to issue or deposit checks. Just make sure that your account carries enough credit balance on the date of withdrawal. Choose the right road for financing car loans and you will have a smooth ride sans any road bumps.

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Find Affordable Car Loans – Cheap Rates For New and Used Cars For Everyone

We all know how important is to have a car. What many don not realize however, is that to get access to a loan to get used or brand new car, your credit needs to be absolutely flawless. In fact, your application might get denied just for missing a single payment on your credit card, mortgage etc. So, if you happen to suffer from a very bad credit but still looking for affordable car loans here are several things you need to take into consideration.

A lot of people who have bought cars before know how affordable car loans work. You meet a salesman who convinces you to buy a used or brand new car. Then, you go into the office and your history gets checked. Depending on your credit history you might be lucky enough to get auto car loans or you might not. For people who do get it, they will end up with a gorgeous brand new car in their driveways – with several payments coming up for the next several years. On the other hand, people who did not get the funds might wonder if there is anything they can actually do to avoid this from happening again in the future. Answers is YES of course.

Remember, before even walking into a dealership, you should have a slight idea of the amount of money you wish to shell out. You should also have a budget and percentage rate in mind for the duration of the payment. Afterward, check out your whole household budget to decide whether getting affordable car loans for a brand new car would be smart for you to do in the end. Now, take a look at how often you make the minimum payments. If other debts exist that seem to bury you on a financial note, it might be smart to keep the car you already have instead. If it is possible, however, check out your history in payments. Were you ever late with these payments? If you answered “yes”, you have to improve your overall percentage rate by several points before anything else and then get ready for rejection after entering dealership.

Dealerships are never keen on risking their reputation; besides, if you cannot pay bills each month, you really should try to avoid getting into more debt. One other thing you should take into consideration when searching for cheap rates for new and used cars is to visit a lot of shops and search for dealers who seem absolutely desperate to sell. Several of these dealers will not even look at credit scores, provided you do not have a very bad credit so there car loan might be an option. If you are convinced that you will be able to make payments based on your income than go ahead and do a research on cheap rates for new and used cars.

Lastly, when it comes to safeguarding affordable car loans, you need to sharpen your negotiation skills. Never accept first offer, otherwise you will look like nothing but a fool to your car salesman. However, if you barter and negotiate tactfully, you should be able to significantly decrease your percentage points, directly affecting the monthly amount you have to pay. Searching for affordable car loans really is not that hard, provided your credit rating is decent and your income per month along with your bills show ratios of debt to income that will turn you into an acceptable candidate in getting that used or brand new car you always wanted.

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The Benefits Of Getting A Personal Loan

A personal loan is usually not secured. It means collateral does not need to be provided by you when you borrow. The loan is offered to you by the lender on the basis of your credit and qualifiers. You can easily get the approval of loan, if you have a good credit. A lower interest rate can also be offered to you. Visit a financial institution or search online to get a personal loan.

Here is a list of some of the benefits of such a loan.

Lower interest rate – If you have good credit, then personal loans with lower interest rates can be availed by you. Around 15% APR on a credit card balance is paid by the people with lower credit card balance. But if you have good credit, you have to pay only 6% APR. While making a big purchase, it is considered as a big difference.
Use for many purchases – Your cash can be used by you for making any purchase. A loan of this type can be used even for purchasing a vehicle, starting a business or renovating your house. Restrictions may be placed by other types of loans on the usage of fund. But the conditions of using a personal loan are flexible and can be used for any purchase.
Consolidate debt – High interest debt can be consolidated by using a personal loan. Several smaller debts with high interest such as credit cards and student loans can be paid off by using a larger loan. Money on interest can be saved if you consolidate your debt by using this loan. Your debt repayment plan can be managed in a better way by combing several loans in one place.
Smooth your cash flow – Your cash flow can be smoothened by using a personal loan. A personal line of credit can be got by you, by using your personal loans. You have to pay a low interest rate in this alternate way of use. An emergency fund doesn’t need to be raised for future. The borrowed amount can be repaid by accessing your line of credit.
Boost your credit score – Your credit score is counted depending on your different types of accounts. One type of credit is represented by credit cards. In this case, you can use your credit score to handle your loans. Your score can be boosted slightly by adding instalment loans in your credit report.
Thus, save a huge amount on all your purchases by using a personal loan. Always remember to compare different loans before borrowing any sum.

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Five Reasons for Refusal of a Personal Loan

Don’t you wish personal finance were a mandatory course in college? Unfortunately, too many of us learn by mistake. When you need a personal loan and are rejected, you might be baffled as to what went wrong- and how to fix it. Here are some clues.

NO CREDIT

No credit is a situation where you have never used credit and therefore have no credit history for the bank to review. They have no way of making an educated decision on whether or not you will pay back a personal loan based on your credit history. No credit is worse than bad credit. Qualifying for and making regular payments on these types of introductory forms of credit can overcome a “no credit” score:

· Student Loans

· Secured credit card (includes a down payment amount)

· Being added to a parent’s or spouses good credit: card, car loan, etc.

LOW CREDIT

Low credit takes on several forms. If you’re using more than 30% of your allowable debt, it can negatively impact your score. Too many inquiries from shopping around for loans will also hit you hard. Lapses in payment, defaults, or bankruptcies are giant red flags and can take a long time to rebuild from.

Other things that lenders may look at are whether or not you have sizeable assets should you default on the loan. They also check to see if your debts are diversified or if you are only carrying one type of debt.

INCOME

Proof of income is generally required when applying for a personal loan. If you are unemployed or underemployed, it can work against you in the loan approval process. Lenders may also require a work history to see how long you have been with your current employer, and to determine if you typically have job stability. Frequent job loss or change will tell a creditor that your payments may not be reliable.

PURPOSE OF THE LOAN

Believe it or not, your application can be rejected due to your proposed purpose for the loan. Financial institutions have the right to set up the parameters surrounding their disbursements and can accept or reject your application based on what you want to use the money for.

BLACKLISTING

If you’ve defaulted on debt before, your name may be put on a list of whom not to loan to,’ also known as a “Blacklist.” This will follow you around for a long time and is difficult to erase. If you do resolve the debt issues, get documents to prove the resolution.

NO CREDIT CHECK LOAN

If you need a loan now, but are concerned that you might not qualify for a personal line of credit, you can qualify for a No Credit Check Loan. You could be on your way to a better financial future in no time!

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A Latin Impact on the Finance Industry

Financial Institutions are a fantastic business model to learn from when considering ever changing market conditions. Their traditional target markets are stable, but, the needs of an emerging market, the Latino market is extremely underserved. It is certainly not for lack of money. Many Latinos have zero debt and healthy saving habits. The question arises, are financial institutions doing enough to serve this population? Are they adapting to the Latino needs? The answer is complicated.

There are two types of Latinos in the USA. One is the immigrant seeking a better life and wanting the American dream, whether they came through the proper channels or not it is irrelevant. The second, are the Latinos that are born here. These are two very different groups of people with different needs and goals. Most immigrants bring their culture, traditions, and customs with them to the US. Those born here develop a blended culture that is both Latino and American.

Financial Institutions are taking notice and making strides to accommodate this very economically influential population. The main reason is that there is a lot of investment in education and developing trust. An untold detail is that in Latino countries, people do not trust banks and financial institution because of corruption. Everything is paid in cash and there are no debt or traditional credit scores. This means that the Latino community have cash, probably stored under their mattress or in a shoe box. This is very dangerous considering that a house fire could burn an entire life savings. Another scenario is they could become a target for robbery. This is a foreign concept for Americans. What is happening is a huge learning curve, educating them on the process of building credit, saving their money in a financial institution, getting loans (mortgage, car, etc.), and most important having trust in the financial institutions.

The younger generations that are born here learn from their parents and surroundings. There is still a disconnect from the importance of financial products, building credit, and how that process works. Many of these young people are just translating for their parents, explaining financial products, and become an intermediary for conducting business. You will notice an increase in bilingual support at many financial institutions for this reason. There is still a lot of work to do in this regard, and this process will take time.

However, more and more financial institutions are offering products specific to Latinos. Information is becoming available in Spanish and more financial institutions are hiring bilingual and multi-lingual speakers. It will be interesting to see how we as a country adapt to this important demographic. It is truly an untapped market that has an important function in our economy for growth and stability.

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6 Home Loans Tips Before Applying

Applying for home loans could be dreadful, particularly on the off chance that you are a first-time home purchaser. There’s a considerable measure of printed material and indulgent preparing included. Yet at the same time, it is justified regardless of your exertion. This far reaching contract aide will walk you through the way toward securing financing for your home and make you feel that applying for a home loan is not that horrible all things considered.

1. Know about them Lender or Broker?

There are two approaches to apply for a home loan. To start with, you can manage a loan specialist or home loan organization straightforwardly. Second, you can procure a home loan representative who will help you look over an assortment of moneylenders. Most homebuyers think that its less demanding and less expensive to choose a loan specialist, without assistance from the outsider. In addition, with a specific end goal to locate an equipped and solid agent, you should do a really decent research and get references. That is the reason a great many people like to keep it straightforward and manage a bank themself. In a few circumstances, be that as it may, merchants can really work to support you. For instance, if your record of loan repayment is not all that good, an accomplished dealer might be exceptionally useful in shopping and arranging for the most ideal arrangement.

2. Know the True Rates

The publicized rate frequently snatches borrowers’ consideration yet it is really not the one that borrowers ought to depend on. The AAPR or “the genuine rate” is a much better guide, as it checks every one of the expenses and charges that will happen over the term of your loan. In spite of the fact that the AAPR is a stage up from the publicized rate, it is still only a quantitative device. Once you’ve chosen a couple loans in view of their AAPRs, you will at present need to investigate their different elements. Some worldwide think-tanks, for example, CANNEX and AIMS Home Loans can outfit you with some canny data about mortage loans and help you limit down your choices quicker.

3. Know about loans details & terms

When you search for a home loan and read through various home loan terms and conditions, you will go over money related wording that you most likely won’t discover somewhere else. It is critical for you to comprehend those home loan terms with the goal that you can secure the most ideal arrangement. Truth be told, numerous money related foundations and land firms offer free homebuying workshops, which can help you comprehend what individuals are discussing in land business. Here are some fundamental home loan terms that you ought to know:

APR – Yearly rate, expected to mirror the yearly cost of acquiring. It is otherwise called the “promoted rate” or “feature rate”, that ought to make it less demanding for borrowers to think about moneylenders and loan alternatives.

Closing Costs – Shutting costs incorporate “non-repeating shutting costs” and “prepaid things.” Non-repeating shutting expenses are any things to be paid only once as a consequence of purchasing the property or acquiring a loan. Prepaid things are things which repeat after some time, for example, property charges and mortgage holders protection. Normally a moneylender should gauge both the measure of non-repeating shutting costs and prepaid things, then issue them to the borrower inside three days of accepting a home loan application.

Collateral – An insurance is the thing that you use to secure a loan or ensure reimbursement of a loan. In a home loan, the property is the security. The borrower will lose their property if the loan is not reimbursed by assentions of the home loan.

4. Check Your Credit

When you apply for a home loan, your whole record as a consumer will be investigated by your forthcoming moneylender. FICO ratings more than 620 have a decent risk of getting affirmed for a home loan with a decent financing cost. On the off chance that your score is beneath 600, in any case, your application might be denied or you may get affirmed at a much higher loan fee. Whether you have a decent or terrible financial assessment, what you ought to do is check your credit report before your bank does. You can get your credit report from Equifax, Experian and Trans Union. In the event that there are any mistakes, attempt to contact these three organizations and clear them up. This procedure can take a great deal of time, so it is something you ought to do a while before apply for a home loan. Paying down your budgetary commitments, for example, Visa obligation and auto loans, before applying for a home loan is additionally an extraordinary thought.

5. Don’t afraid from your bad credit score

Regardless of the possibility that you have an awful financial record, you ought to in any case glance around for the best arrangement. Don’t simply expect your lone choice is a high-taken a toll loan. On the off chance that your credit issues were created by unavoidable circumstances, for example, ailment or a brief loss of pay, disclose your circumstance to the loan specialist or intermediary. Ask a few banks what you need to do keeping in mind the end goal to get the least conceivable cost.

6. Verify and clarify all the things

A pre-endorsement letter is extremely useful, yet not as awaiting as you may think. When you locate a home you’d like to purchase, and your offer has been endorsed, you will need to do a reversal to the moneylender and submit archives that confirm your monetary data to get a loan. Your benefits will be assessed. The loan specialist will investigate your work history. You ought to have no less than two years of business history in the same profession. On the off chance that you are new to the work power, advanced education may help you get endorsed. In the event that you don’t have a sufficient record as a consumer, you may utilize normal regularly scheduled installments, for example, lease, telephone, or satellite TV to demonstrate the loan specialist that you are a reliable shopper.

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The Role of Islamic Finance in Economic Stability and Social Justice

One of the most distinguishing times for the U.S. Islamic home financing industry began in February 2007. The Federal Home Loan Mortgage Corporation (Freddie Mac) sent out a press release announcing that it would no longer buy the most risky subprime mortgages and mortgage backed securities. Two months after the announcement, a leading subprime mortgage lender filed for Chapter 11 bankruptcy protection. Three months after that bankruptcy filing, nationwide financing entities warned of “difficult conditions” ahead. Manifestations of such difficult conditions appeared on the horizon of the financial market when once well-established mortgage companies suddenly began to file for Chapter 11. Similar circumstances reached the U.K. as the Bank of England cleared an authorization to provide liquidity support to Northern Rock, the country’s fifth largest mortgage lender. Five months later, Treasury of the United Kingdom became the owner of Northern Rock.

Up until that point, the gravity of these “difficult conditions” was not fully understood by most of the populace. Late in 2008, the Federal Reserve Bank of New York was authorized to lend $85 billion to the AIG. This was the beginning of the most serious recession in the United States since the Great Depression. What followed was a chain reaction that led to an unprecedented global financial crisis, as the world suffered from rising unemployment, rampant foreclosures, and severe skepticism of financial instruments.

This led to a renewed spotlight on an unfamiliar market segment that appeared comparatively more stable and, more importantly, far more ethical: the Islamic financing sector. From the financial centers in Malaysia to the Middle East, spanning across over seventy countries, Islamic finance in the U.S. increased from $5 billion in the 1980s to $1 trillion in 2010. This phenomenal growth caught the attention of global investors who were seeking to safeguard their investments through more ethical and reliable financial instruments. When financial sector workers realized that these Shariah-compliant instruments avoided many of the worst effects of the global financial crisis, it became an attractive investment vehicle to support a more diverse portfolio. The Shariah-compliant financial sector has avoided investment in predatory lending businesses and overly leveraged financial instruments due to the strict ethical nature of the Shariah governance system. News and media outlets started to cover this ancient yet unfamiliar industry in hopes of learning from the mistakes of the conventional banking sector.

The concept of the modern Islamic financial services industry is rooted in the principles of Islamic legal jurisprudence that deals with financial transactions, a branch of Islamic jurisprudence called Fiqh Al Muamalat. Fiqh Al Muamalat is a framework under Islamic Law that charts the conduct of Muslims in commercial or economic endeavors. Islamic finance products and rulings are based on specific injunctions from the Quran that prohibit certain features of financial transaction models and related economic activities.

The Quran forbids interest, also called usury or riba. The underlying reasoning is that Islam considers lending to be a charitable act to help another member of the society in his/her time of need – therefore, profiting from someone’s hardship is strictly forbidden. In the conventional banking system, when interest is charged on a loan, the risk of that transaction is transferred to the borrower while the lender gains profit from the interest-based transaction. There is no consideration for the hardships endured by the borrower in the event they undergo any loss from the transaction.

By its nature, Shariah law prohibits unethical financial practices. It also promotes wealth distribution among all people to reduce poverty and inequity. This is manifested in the prohibitions of activities such as excessive speculation, gambling, and investing in products that are harmful for society as deemed by Islamic law (alcohol, pornography, etc). The structure of Islamic financial products and services, especially its prohibition in speculative transactions, has helped the industry escape most of the adverse effects of the global financial crisis. The governance model of Islamic financial institutions has been praised as an ethical alternative by institutions such as the International Monetary Fund and the World Bank. Economic experts have suggested that Islamic financial principles can be leveraged to promote financial inclusion that uplift the quality of life in developing nations. Islamic financial principles can also contribute to financial stability and economic development around the world.

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