Islamic Loan Calculator (Sharia Compliant)
Calculate your Murabaha or Ijara monthly installments instantly. This tool adheres to AAOIFI standards for fixed profit margins, ensuring no compounding interest (Riba) and full transparency for 2026 financial benchmarks.
Financing Summary
Understanding Islamic Finance: Murabaha vs. Ijara
In the evolving financial landscape of 2026, Islamic finance continues to stand as a robust alternative to conventional banking, primarily due to its emphasis on ethical investing and the prohibition of Riba (interest). This calculator is designed to provide users with transparent, AAOIFI-compliant estimates for the two most common Islamic financing vehicles: Murabaha and Ijara.
What is Murabaha (Cost-Plus Financing)?
Murabaha is essentially a sale contract where the bank purchases an asset (like a car or a home) and sells it to the customer at a disclosed profit margin. Unlike a conventional loan where interest accrues over time, the profit in a Murabaha contract is fixed at the start. Once the contract is signed, the price cannot change, providing the consumer with absolute certainty regarding their liabilities. According to AAOIFI Financial Accounting Standard (FAS) 28, the profit is recognized over the term of the contract, but it does not compound, making it a "stable" financing option for conservative budgets.
What is Ijara (Lease-to-Own)?
Ijara functions more like a leasing agreement. The bank remains the owner of the asset and "rents" it to the customer. Each monthly payment consists of two parts: a rental component (for using the asset) and an acquisition component (to eventually own the asset). In 2026, Ijara remains popular for real estate, as it allows for flexible rental adjustments based on market benchmarks without violating Sharia principles, provided the methodology is agreed upon upfront.
The Mechanics of the Calculation
Our calculator uses the following logic to ensure Sharia compliance:
- Principal (Cost): The actual price paid by the bank to acquire the asset.
- Profit Margin: A fixed percentage agreed upon today. In Murabaha, this is calculated as
Total Profit = Principal × Rate × (Term/12). - No Late Fees: Islamic principles prohibit charging late fees for profit. Our logic assumes a clean repayment schedule where any penalties are donated to charity rather than kept by the bank.
Why Transparency Matters in 2026
With global economic shifts, consumers are seeking "fixed-cost" certainty. Conventional loans often involve floating rates that can spike unpredictably. Islamic financing through Murabaha provides a ceiling on costs, protecting the buyer from market volatility. This calculator helps you visualize that cost distribution through our integrated SVG charts, showing exactly how much of your payment goes toward the asset's cost versus the bank's profit.
Frequently Asked Questions
Yes. Interest (Riba) is a charge for the use of money. In Islamic finance, the profit is generated from the sale of a tangible asset (Murabaha) or the usufruct of an asset (Ijara). The profit is fixed and disclosed upfront, whereas interest can compound and change over time.
Under AAOIFI standards, many Islamic banks provide a "rebate" (Tanazul) for early settlement of a Murabaha contract. While not legally mandatory in all jurisdictions, it is a standard practice in 2026 to encourage early repayment without charging the remaining profit.
Islamic banks cannot profit from your default. Instead of "interest on interest," they may charge a small penalty that is strictly donated to a registered charity. Your debt remains at the fixed price agreed upon at the start.
Usually, yes. Known as 'Hamish Jiddiyah' (earnest money), it demonstrates your commitment to the purchase and reduces the total amount financed, thereby lowering your monthly installments.
Sharia law requires full disclosure. All processing fees, Takaful (Islamic insurance), and valuation costs must be clearly stated in the contract before signing.