Q: in islam if someone wants a loan from me can i request a collateral. How dose this work? (In person inquiry/after jummah salah/iccv)

A: In Islam it is permissible to ask for collateral (rahn رَهْن) when giving a loan, particularly to ensure that the lender is protected from loss—as long as it is done fairly and without exploiting the borrower.

What is Collateral in Islam?

Collateral (Arabic: rahn) is an item or property pledged by the borrower to the lender as a security against the debt. If the borrower fails to repay the loan, the collateral can be sold to recover the owed amount. It is also best that this is documented: If you are on a journey and cannot find a scribe, then let there be a pledge taken…” (2:283)  This ayah allows the use of a pledge (rahn) in the context of a debt, especially when formal documentation is not easily available. Rasool ﷺ himself took and gave collateral in his lifetime. Aisha (RA) said: Rasool ﷺ bought foodstuff from a Jew on credit and mortgaged his ﷺ iron armor to him. Rasool ﷺ gave his armor as collateral for a loan. Doing so in a society that needed to defend itself, giving ones most valued treasure was an armor, thus, showing good faith on the side of the one requesting it as well.

(Some) Conditions for Seeking Collateral:

1. No Interest (Riba):
2. Mutual Consent: The collateral must be agreed upon by both parties.
3. No Exploitation: You can hold the item, but you cannot use it or profit from it unless the borrower gives explicit permission (and even then, scholars have detailed conditions. This is because one cannot exploit a situation and take unfair benefit of a situation. This could result in Riba).
4. Transparent Terms: The loan terms and the details of the collateral should be clear and documented.
5. Return of Collateral: Once the debt is repaid, collateral must be returned promptly in its ‘original’ condition.

If someone borrows $5,000 from you, you can say: I can give you the loan, but I would like to hold your car title as collateral until the debt is repaid. Once they repay, you return the title. If they don’t, and after appropriate communication and patience, you may sell the car to recover your $5,000—but nothing more. The excess money must be given back to the owner of the car.

Spirit of the Shariah: While collateral is allowed, Islam highly encourages leniency, mercy, and trust, especially toward those genuinely in need. Rasool ﷺ said: Whoever grants a respite to a debtor or waives the debt, Allah will shade him on the Day when there is no shade but His.
Allah Certainly Knows Best.