Top 4 Misconceptions about Islamic Finance

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With the steady growth and rising popularity of the Islamic finance industry over the past decade, many consumers still hold on to tightly held misconceptions. Whether it’s because of an unclear understanding of the financing industry in general or because of misinformation spread by others surrounding non-traditional finance methods, potential home buyers often bypass potential savings. Home buyers can benefit from being accurately informed about Islamic finance so here are four misconceptions to help home buyers identify whether Islamic financing is the best option when purchasing a home.

Misconception #1: Islamic Finance is for Muslims only.

Truth: Islamic finance is an alternative for conventional financial transactions. Although based upon ethical and social values of the Islamic faith, it shares the same economic objectives as more conventional products. Islamic financing is available to Muslims and non-Muslims and is gaining popularity – large banking groups such as Citigroup and Standard Chartered offer Islamic financial products and services. The market is truly open to everyone.

Misconception #2: Islamic finance is drastically different than conventional mortgage.

Truth: Islamic finance is better explained as taking a different approach to conventional finance. It is asset-based, not currency-based. In other words, the rate of return is based on the actual asset or investment and not the “interest” on the money loaned – as interest (or the Islamic legal term “riba”) is not compliant with Islamic principles.  The financier, however, may make a profit or return on its investment and may structure its products in a way that closely mirrors more conventional methods.

Misconception #3: Islamic finance is more complicated than traditional mortgage.

Truth: Financing in general can seem complicated to the average consumer – especially consumers that are new to the concepts, terms and practices of the financial industry. However, working with a company that provides support and guidance throughout the process of financing or refinancing a home is a simple solution. Guidance Residential, the #1 U.S. Islamic home finance provider, unlike “quick” mortgage loan providers found on the internet, assigns a professional Account Executive to each client. The Account Executive works with each client to answer questions and provide education on all aspects of the financing process. Account Executives are skilled and knowledgeable and understand that clients, especially those purchasing their first home, need a trusted source for one of the largest financial decisions they will make.  Whether needing advice over the phone, or wanting a more personal interaction via a face-to-face meeting, Guidance Residential prides itself on customer service.

Misconception #4: Islamic finance is more expensive than conventional finance.

Truth: In a word, no. Although the Islamic finance industry at the onset operated in a very niche market with less competition, pricing did tend to be higher. However, as the industry became more mainstream, Islamic financial products and services fell in line with the more traditional offerings on the market.

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