Is it permissible to use overdraft which is interest free?
In the name of Allah, the Most Gracious, the Most Merciful.
Assalamualaikum Warahmatullahi Wabarakatuhu
Overdraft is defined as “An extension of credit from a lending institution when an account reaches zero. An overdraft allows the individual to continue withdrawing money even if the account has no funds in it. Basically the bank allows people to borrow a set amount of money.”
The general norm among commercial banks that have interest free overdraft products is to charge additional service/bank fees and charges. Many commercial banks have a buffer zone after which an interest rate is fixed. Many more banks have unauthorized service/bank charges on interest free overdraft facilities.
Nevertheless, we cannot issue a ruling without analyzing the terms and conditions of the facility in reference since there are many issues to consider when analyzing the Shari’ah Compliancy of such a facility.
Kindly submit the relevant documents pertaining to the product in reference.
And Allah Ta’ala knows best
Moulana Ismail Desai,
Durban, South Africa
Checked and Approved by,
Mufti Ebrahim Desai
 http://www.investopedia.com/terms/o/overdraft.asp#axzz24IuySPSD, accessed at 22/08/12.