Question #363:
What is the ruling on buying a car on installment basis with a price higher than normal purchase? Is that considered to be riba?
Answer :
This type of transaction is called “Taqseet” or Installments. This is permitted even if the price with installments is more than the price without installments, as per the fatwa of Permanent committee. See the fatwa here.
Q: What is the ruling on selling a car for 10,000 if in cash or 12,000 if in installments as is the case in car exhibitions today?
A: If someone sells a car or anything else to another person in return for 10,000 riyals in cash or 12,000 riyals in installments and they go out without determining any of those two options, then this sale will be invalid because of not determining the status of this sale. Scholars have cited the prohibition of the Prophet (peace be upon him) on making two transactions in one bargain for that effect. This Hadith was reported by Ahmad, Al-Nasa’y and Al-Tirmidhy. Al-Tirmidhy regarded this Hadith as an authentic one. If the seller and the buyer agree on the way of payment whether in cash or in installments during the time of signing the contract and before leaving, then this sale will be valid.
See the fatwa at :
End of the Fatwa of Permanent committee.
This is allowed if the contract is between the shop owner and the customer and doesn’t involve any third-party financing person or bank.
Third-party involvement can be like :
- A person says I will buy for you car from the shop and pay me the installments. Then this is riba. (This is as per an old fatwa given by our Shaykh Abu Bilal in our class and also this is fatwa of Shaykh Al Uthaymeen (Liqa Al Bab Al Maftooh (12/37)))
- If there is a bank that does the financing similar to the financing person above then this is also riba. This can happen like, a customer goes to shop to buy the car in installments, then the shop owner or some employee of the shop give him some papers to sign, which is an agreement between the customer and a bank. Then this is riba. I have asked the our Shaykh Abu Bilal about this and he told this is riba.
If there is no third-party involved and the agreement happens between the customer and shop owner then the customer need to look into the conditions related to delay in payment of installments. There should not be any increase in number of installments or increase in amount of installments in case of delay of payment from customer. Because the increase in amount of installment or number of installments is Riba. I have asked our Shaykh Abu Bilal about this also.
Compiled by : AbdunNoor Al Hindi