Conventional banking generates profits by charging loans interest and investing in other assets. Islamic banking employs Islamic principles and Syariah regulations in the creation of banking products. It charges profit rates rather than interest rates. There are a variety of banking products, either conventional or islamic. The following are some suggestions that may assist you in making your decision. Pros and Cons of Conventional Banking Products Advantages Owning legal gambling businesses, you will be eligible to apply for conventional banking products. On the other hand, Islamic financing has limitations when it comes to halal sources of income. Also, you do not need to draw up a new agreement when increasing the loan amount on a property. There would only be an additional stamping fee levied for the process. However, if you used Islamic based mortgage to finance your property, you would need to make a new buy-and-sell agreement. In a conventional mortgage, this could lead to more savings if such a situation were to arise. Disadvantages If you choose a conventional banking product, the interest rates on the loan are not subject to a maximum cap. Nevertheless, when the bank adjusts its base rates, interest rates must be justified. Still, without a cap, interest rates could potentially rise to alarming levels. As a result, the home owner will have very large monthly obligations, making it impossible to create a long-term budget. Bank Negara Malaysia, on the other hand, has policies in place to moderate market rate swings and protect consumer interests. Pros and Cons of Islamic Banking Products Advantages The total amount of the property acquired was decided at the point of the contract, also known as aqad. This started when the BBA (Sale And Buy Back Agreement) House Financing was first implemented. Say if a customer wanted to buy a house, the bank would buy it at the selling price and sell it back to the consumer for a higher price, giving the bank a fixed profit. Hence, the whole sum the amount would be paid throughout the course of the contract’s stated number of years. There will be no monthly commitment variations like there are with conventional mortgages, which varies according to interest rate shift in base rates. Also, to prevent too high or too low rates at certain periods, Islamic banks invented variable rate financing. It works similarly to conventional interest rates, but has a maximum cap. This is a good way to protect investment and ensure that the monthly commitments do not surpass a set amount. Another benefit that stands out in Islamic hire buy solutions is the absence of late fees. According to the Bank Negara website, Islamic hire purchase has a late payment fee of 1.00 percent per annum of the due instalment, whereas most conventional hire purchase has an annual fee of 8.00 percent, although there are exceptions. Disadvantages Some financial institutions impose administrative and other sorts of fees to regulate the account. These add-on fees would vary by bank, but they would most likely be comparable to conventional product fees in order to keep conventional banking competitive. Another downside of Islamic finance products from a non-Muslim perspective is that they require halal transactions. This means that you cannot use an Islamic credit card to buy alcohol, gamble, or any other non-halal products and services. If your income is not regarded halal under Syariah concepts and rules, banks will refuse your application for an Islamic housing loan, hire purchase, credit card, or any other products. This does not only apply to businesses that are perceived to be illegal, but also to those that profit from non-Halal products such as alcoholic beverages. So, which one to choose? Both sorts of financial products have benefits and drawbacks, but they operate on similar principles, just with distinct ideologies. It is important to know that anyone can apply for Islamic banking products as long as their source of income is halal. However, a combination of the two sides of banking goods could work in your favour financially. When it comes to choosing a banking product, doing more research should help you make a more informed decision. Read more articles concerning related topics on LoanPanda. Follow LoanPanda on FaceBook & Tiktok to get more information.