Buying properties on interest loans : vehicle finance

Fatawa Question

[Question one] : Assalaamu Alaikum, I have a question which is part theoretical and part actual... I intend to buy a new car. Since it is haram to pay interest, I am looking for a 0 % APR finance scheme. In MA, a car is available for $ 20000 with 1.9 % interest. The total cost over 60 months is therefore $ 20380. In NY, the same vehicle is available for 0 % interest, but the sale price is $ 20500. I am in Worcester MA. So a drive down to NY will probably cost me more money too... If I go for the NY deal, then my cost will be $ 20500 +. But is the more expensive deal really 'Halal' for me while the lower cost vehicle is 'Haram' ? I feel that even though it says 0 % interest, the difference of $ 120 (20380-20500) which is some amount of interest (may not exactly be 1.9 %) has been built into the cost of the 0 % vehicle. Something about the whole scenario above is very confusing to me...I do not know much on Islamic law of finance... But keeping aside my personal case....is not the above a little strange ? Is it clear to any knowledgeable Muslim that the more expensive vehicle is Halal and why the less expensive is Haram ? What exactly makes the above purchase Halal or Haram ? They both seem the same to me. Jazakallah Khair [Question two] : Assalaamu Alaikum ! This time it is definitely Asif who is asking the question :) My wife forwarded the question to you after our local mosque respectfully declined to comment lacking knowledge in the area (we don't have a permanent imam yet... In Sha Allah we will get one soon). When you say 'on face value one is Haram and the other Halal'... you are hitting the nail on the head. We are having qualms of accepting the fact that merely on the surface the 0 % 'appears' Halal. I do not know how far I should go to investigate the price ! Brother. What matter is the nature of the contract whether it is a sale or a loan, numbers are subject to negotiation ? I am 100 % certain that the deal is 0 % from the bank AND I know that there is $ 0 finance charge by the bank. That is guaranteed by the bank. Quite possibly the dealer in NY is having some extra padding (higher margin), but nevertheless, to the best of my knowledge this deal is better than that which is lesser (in MA). We sometimes wonder if that extra padding = interest, but it is not, based on your explanation (please excuse if I have misunderstood). The extra value is that NY dealer's increase on the price of his commodity. In Shari’ah, time is valued when associated with real goods but not when associated with debts. Simply because debts do not change by the time factor but utility derived from goods do change There are two other points that I am concerned about : 1. The bank loan will definitely have late payment penalties. I have heard that that is Haram. What is the correct opinion on this ? 2. While late payment penalty is necessary to deter the debtor from delaying payment, it cannot be earned by the creditor because it is an increment in a debt and debts do not create such increments. Therefore we charge it to debtor but give it to charity. If there are any incidental expenses caused by the delinquency, they can be deducted before distribution to charity. Conventional sellers / creditors in America take it as earning which is not permissible in Shari’ah. 3. I have also heard that it is Haram to take loan (debt) if I have money (I.e. I could put more cash down...but instead I decide to hold it for other expenses). What is the correct opinion on this ? Under necessity circumstances one may take an interest based loan, of course necessity must be only to the minimum amount that relieves the necessity. Regards, Asif

Fatwa

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Publication Date

2011-04-06

Main Subjects

Economics & Business Administration
Financial and Accounting Sciences
Islamic Studies

Topics

• Islamic jurisprudence
• Financing
• Purchasing
• Automobiles
• Usury

No. of Pages

3

Data Type

Fatawa

Language

English

Record ID

BIM-729737

• APA
• MLA
• AMA