Murabaha vs. Conventional Loan
Murabaha | Conventional Loan | |
|---|---|---|
Contract Structure | Installment credit sale contract where you sign a contract assigning Devon Islamic to be your intermediary (money is not lent to you directly) to purchase the property for you & then you immediately purchase the property from Devon Islamic & sign a Murabaha contract for the balance amount due on the purchase price of the house. | Interest based lending agreement and transaction. You sign a contract to directly purchase the property. Money is loaned to you directly & you sign a promissory note that states the principal amount & rate of interest at which the principal will be repaid. |
Profit Rate vs Interest | Profit rate is calculated based on fixed rate financing without any additional costs & cannot be compounded. | Interest rate is calculated based on the money loaned to you & can be compounded. |
Risk Factor | A more equitable transaction where the risk is shared. | Customer bears all risk. |
Penalties & Late Fees | Late payment fee charged to encourage timely payment by the buyer. Fee is donated to charity and will not be profited by Devon Bank | Late payment fee charged to encourage timely payment from the borrower. |
