Zakah may not be paid to settle loan
13-11-2016 | IslamWeb
Question:
Assalaamu alaykum to the Islamweb.net team. I have a question regarding zakah. If a person, regardless of whether he was in need or not, has taken a loan from an interest-based bank and is now unable to repay the bank, can he use his zakah money to repay his debts to the bank given that, in this case, it is interest-based? So what is the ruling here?
Answer:
All perfect praise be to Allah, The Lord of the worlds. I testify that there is none worthy of worship except Allah and that Muhammad 
is His slave and Messenger.
Allah Almighty forbade Riba (interest and/or usury) and promised war against the person who practices it; Allah says (what means): {O you who have believed, fear Allah and give up what remains [due to you] of interest, if you should be believers. And if you do not, then be informed of a war [against you] from Allah and His Messenger. But if you repent, you may have your principal - [thus] you do no wrong, nor are you wronged.} [Quran 2:278-279]
Besides, Jaabir ibn ‘Abdullah, may Allah be pleased with him, narrated that the Prophet said, “Allah has cursed the one who consumes interest, the one who gives it to others, the one who records it, and the two witnesses to it.” He said, “All of them are equal in sin.” [Muslim]
Therefore, it is not permissible to deal in Riba except for an Islamically considerable reason. According to a fatwa by the Islamic Research Council in Cairo in its second conference, held in the month of Muharram 1385H (May 1965), it says: “Interest on all types of loans is forbidden Riba, and there is no difference between what is called a consumption loan and a production loan. A lot of interest in it or a little is still forbidden, and giving loans with Riba is forbidden and is not made permissible by need or necessity. The same applies to borrowing with Riba. It is all forbidden unless there is a necessity, and every person is responsible for deciding whether or not his case is in fact one of necessity.”
The Fiqh Encyclopedia (Al-Mawsoo’ah Al-Fiqhiyyah) reads, “It is permissible for one who is compelled by necessity to engage in a Riba-based transaction, and the lender is sinful, but the borrower is not sinful in this case.”
Whether the person takes a loan with Riba for a need or for no need, he may not pay the zakah to settle his debt (loan) that is mentioned in the question, as in this case it is considered that he had paid it to himself and for his own benefit, and it is clear that this is not permissible.
The jurists explained the reason for the prohibition of paying the zakah to a parent or a child, as it is similar to paying zakah to one’s own self.
Ibn Qudaamah 
said in Al-Mughni:
“The obligatory zakah is not given to the parents, grandparents or great-grandparents, nor to the children or grandchildren or great grand-children. Ibn Al-Munthir said, 'The scholars agreed that it is not permissible to pay the zakah to the parents in case the person is obliged to spend on them, because paying the zakah to them makes them not in need of him to spend on them, which waives his obligation of spending on them, so its benefit returns to him [i.e. he is the one who benefits from this]; it is like paying his zakah to yourself, so this is not allowed, as in the case that he settles his debts with it.”
Allah knows best.