Ruling on installment purchases / financing

بســـم اللــه الرحــمــن الـرحـــيــم

▪️Ruling on installment purchases / financing▪️

Our Shaykh, Muhammad ibn Hizaam -may Allaah preserve him- was asked the following question:

? Question:

What’s the ruling on installment purchases if they do not (initially) incur any interest, although it’s stipulated in the contract -between you, and the bank or car company- that you must complete the payment before a set date – three or five years for example, and if you fail to clear the balance within that specified time you incur interest, set at such and such rate?

? Answer:

If this installment method you’ve mentioned involves a condition which requires you to pay extra for any missed payments, then this is a Ribaa-based transaction and it’s impermissible. But if they do not stipulate this, the transaction remains permissible and you must make payments according to the agreement (based on Allaah’s saying):

{وَأَحَلَّ ٱللَّهُ ٱلۡبَیۡعَ وَحَرَّمَ ٱلرِّبَوٰا۟ۚ}

“Allaah has permitted trading and forbidden interest.” [Surat Al-Baqarah 275]

There’s also nothing wrong for a seller to increase the price if the buyer opts to pay in installments as opposed to a one lump sum payment, provided they agree on this beforehand.

If the buyer is unable to make the payments within the set time, then:

{فَنَظِرَةٌ إِلَىٰ مَیۡسَرَةࣲۚ}

“delay things until matters become easy.” [Surat Al-Baqarah 280]

But if he is able to make the payments on time, he must do so. Any extra charges (surplus to the agreement) falls under Ribaa;

{یَـٰۤأَیُّهَا ٱلَّذِینَ ءَامَنُوا۟ لَا تَأۡكُلُوا۟ ٱلرِّبَوٰۤا۟ أَضۡعَـٰفࣰا مُّضَـٰعَفَةࣰۖ وَٱتَّقُوا۟ ٱللَّهَ لَعَلَّكُمۡ تُفۡلِحُونَ}

“O believers! Do not consume interest, multiplying it many times over. And be mindful of Allaah, so you may prosper.”

[Surat Aal-E-Imran 130]


Translated by:

Abu Ishaq Muhammad Ibn Ahmad Ba-‘Alawi

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