Is it considered unlawful to use the proceeds of a bank deposit to pay the interest on a loan secured by the same deposit, especially if the interest paid on the loan is less than the principal of the loan due to the declining interest rate?

It is forbidden to deposit money in an interest-based bank due to the assistance it provides in sin, and it is forbidden to take out an interest-based loan even if its interest is paid from the interest of an interest-based deposit. Among the reasons for the prohibition are that the usurious contract is inherently forbidden, that usurious interest may not be utilized but rather must be disposed of in charitable causes, and that this transaction strengthens the bank to continue its forbidden work.

It is obligatory to withdraw the money from the bank and cancel the loan contract. If cancellation is not possible, then what the bank demands must be paid to be rid of its transaction. As for the interest received from the bank, it must be disposed of and spent on the welfare of Muslims, and one must repent to Allah for dealing with usury.