My father has a business in AUSTRALIA, pays alot of tax, and he pays his duty as a Muslim too. Last year his accountant adviced him to buy a car so he can reclaim some of his taxes which he did. He leased a car and paid installments every month for 3 years. After the three years he returned the car and leaseed new car again. My question: is leasing a car from the car dealer forbidden in Islam?

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad is His slave and Messenger.

If your father takes a car from its owner on rent only for a prescribed period; i.e., three years, or more or less, then it is a valid contract.

If he enters a contract, which is not clear, meaning he has the option of renting only, or renting and eventually buying the car, then such a contract is forbidden.

The rent contract, which ends with ownership, is an invalid contract. A group of contemporary Muslim scholars are agreed that such a contract is prohibited. The Permanent Board of scholars in the Kingdom of Saudi Arabia also prohibited this kind of contract. The reasons of prohibition are as follows:

1 - There are two impermanent contracts in this dealing. These two contracts are contrary in their respective results. The contract of sale means the change of position/ownership of an object and its benefits from the seller to the buyer. The buyer becomes responsible for the bought object and its benefits. While renting means the ownership of the rented object is not changed, the lessee has the right to use it only without owning it.

2 - The prescribed installment in this contract is actually not rent, but rather a part of the payments of price. So, it is not similar to the amount reserved to renting the same. In most cases, it is either higher or lower. If the buyer cannot pay the installments, the owner of the object takes it back; in this case, it is the car, while the renting person might have paid installments, equal or very close to its original price.

For example, a house costing one hundred thousand dollars (100,000) may be rented for one thousand dollars monthly (1000).

However, under the terms of a lease/purchase agreement, for a stipulated period, the monthly rate is three thousand dollars (3000). The person under this agreement makes twelve monthly payments but cannot continue. The property reverts to the owner as though the lessee had been a renter. While he had paid 36,000, the actual renter would have paid only 12,000, for the same period (12 months). The seller then withdraws the house and does not give the buyer back any money claiming that he has used the house during that period. No doubt that this is an illegal way of stealing people's money.

3 - Many people, who involve themselves in such contracts, become bankrupt because they get involved carelessly in taking loans. But sometimes, it is the creditor himself who becomes bankrupt.

For the mentioned reasons, the Permanent Board of Scholars in the K.S.A gave a Fatwa that this kind of dealing is forbidden.

Instead of this contract, one may use the installment sale, with sufficient guarantee, or by taking the sold object as mortgage.

If the buyer cannot pay the installments, then the seller has two choices:

1 - He can take the sold object at the rate of the market on that day. He is liable to take only what is his right and should give back the exceeded amount to the buyer.

2 - Or he can take what is his right after selling the object to a third party.

Allah knows best.