Getting Islamic financing with no guarantor or cosigner

What a cosigner does in a conventional loan

A cosigner, or guarantor, promises to pay if the borrower does not. Lenders ask for one when a file looks weak: modest income, a new job, no credit history or student status.

Why so many applicants have no one to cosign

Newcomers, international students and people living far from family often have no relative in Canada able to guarantee a debt. The page on halal financing for immigrants covers this common situation in more detail.

Guarantee, or kafala, in Islamic law

Islamic law recognises kafala, a third party's commitment to answer for someone else's debt. It is permitted, but according to many scholars, the guarantor cannot be paid for guaranteeing, since that would be a gain on a loan.

Be wary of paid cosigning services

Some companies offer to act as cosigner for a fee based on the amount borrowed. Beyond the cost, this model raises the issue of a paid guarantee, so ask a qualified scholar before paying for such a service.

When the financed item is itself the security

In murabaha or ijara, the financier holds ownership of the item, or a security interest in it, until the last payment. This link to a real asset explains why a personal guarantor is requested less often than for a cash loan.

A pledge, or rahn, instead of a guarantor

Rahn means handing over an asset or deposit as security for payment. A locked savings account or a valuable item can thus replace the cosigner; the page on Islamic pledges in Quebec explains the conditions.

A bigger down payment lowers the risk

The larger your initial contribution, the less the financier relies on an extra guarantee. For a car or equipment, paying a significant share of the price up front may be enough to have a file accepted without a cosigner.

Building credit history without paying interest

A phone account, a secured card or a credit card paid in full every month feeds your credit file without generating riba. The page on the credit score in halal financing explains which factors matter.

In Quebec, suretyship also puts your assets at stake

In Quebec, suretyship is governed by the Civil Code, and a solidary surety can be pursued as soon as the main debtor defaults. Agreeing to guarantee a relative's debt therefore deserves careful reading with a notary or lawyer.

Balance insurance as a partial alternative

Some financiers accept insurance that pays off the balance on death or disability instead of a guarantor. The page on takaful and financing insurance compares the conventional approach with the co-operative one.

Caisses and co-operatives look at the whole file

A caisse or co-operative where you have long been a member often considers your regular savings and deposits. A stable relationship can offset the lack of a cosigner, though the product offered must still be checked from a religious standpoint.

Starting small to earn trust

A modest first contract repaid on time is the best reference for larger financing. Specialised halal providers look at payment history, and a short murabaha can open the way to a more ambitious project.

Building a halal file approved without a cosigner

1. Ask the financier in writing why a cosigner would be required: income, job tenure, credit history or amount.
2. Fix the weakness identified, for example by waiting a few months in your job or lowering the amount requested.
3. Increase the down payment or offer a locked deposit as a pledge, following the rahn principle.
4. Favour a murabaha or ijara in which the financed item stays tied to the contract until the last payment.
5. Get your credit file from Equifax and TransUnion and have errors corrected before applying.
6. Have a scholar review the contract and confirm it contains no paid guarantee or growing penalty.

What financing without a cosigner costs

Documents that make up for having no guarantor

• Employment letter stating position, salary and start date
• Recent pay stubs and Notice of Assessment
• Bank statements showing regular savings
• Proof of the down payment or deposit offered as a pledge
• Equifax or TransUnion credit report
• PR card, work permit or study permit, if applicable
• Payment references: lease, phone account, previous contract

Common missteps when you have no cosigner

• Paying a company to cosign, when a paid guarantee is problematic according to many scholars and expensive as well.
• Asking a friend to cosign without explaining they can be pursued from the first missed payment.
• Applying to many lenders in a short time, which lowers your credit score.
• Taking an interest-bearing loan without a guarantor out of haste, instead of waiting a few months to strengthen the file.
• Treating a pledged deposit as an investment: the locked money should not earn interest paid back to the client.

Your questions about Islamic financing without a guarantor