In the name of Allaah, the Most Merciful, the Ever Merciful
I want to buy a car to use for work via the bank by installments and at a rate of interest. Is that forbidden? Should it be forbidden, what is the difference between it and the selling by the installments for a lawful rate of increase? What is the Sharee‘ah-sanctioned method of buying on credit?

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu 'alyhi wa sallam, is His slave and Messenger.

At the outset, we would like to indicate the permissible form of selling by installments that has two cases:

First: The commodity, which is the car as in the question, is owned by the seller, which is the bank and is in its possession. The buyer purchases it on credit for a price that is known to both parties. The price is not subject to increase, even if the payment is overdue. Both parties agree on how the buyer will pay by installments.

Second: The commodity is not owned by the bank but by a third party. The buyer asks the bank to buy this commodity and promises the bank that he will buy the commodity after the bank has purchased it. Then the bank buys the commodity and becomes liable for any damage that might befall it. Then the buyer purchases it from the bank for whatever price they agree on, but on two conditions. First, the price must be known to both parties even if it is more than the price for which the bank has purchased the commodity. Second, the price must not be subject to increase, even if the payment is overdue.

With this the difference is made clear between the permissible and the forbidden forms of selling by installments as done by the traditional banks. This difference is summarized by two things:

First: It is provided for the permissibility of the deal that the commodity is owned by the bank and that the bank guarantees it. If the bank does not own the commodity, then it is not permissible to engage in this deal.

Second: In the permissible deal, the price is known at the time of contracting and it is not subject to increase, even if the payment is overdue. The bank may not charge more than the known price because the contract is pertaining to sale, not to interest. This is the opposite of what takes place in traditional banks, as they increase the rate of interest when the payment is delayed.

Allaah Knows best.