Buying on Annual or Monthly Installments

12-3-2023 | IslamWeb

Question:

Assalamu Alaikum,We are trying to purchase a car from the dealer. The dealer have their own bank so we will be purchasing it directly from them with no third party included. However, they have a monthly apr% attached. Is this is a halal purchase or not?

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Answer:

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 the matter is as you mentioned that the distributor has a bank of his own, and there is no third party between you and him, and that the purchase will be made through this bank that owns the car, and sells it to you for a fixed price in annual or monthly installments, and it does not require prohibited conditions such as fines for late payment, then there is nothing wrong with this purchase.

As for the fact that the bank increases the profit with a predetermined annual interest because of the installments, there is nothing wrong with it, because time has a share of the price, and selling on the spot is not like selling on installments. The important thing is that both the price and the term are known at the time of the contract.

The Islamic Fiqh Academy decision related to the issue of selling by installments reads:

“It is permissible to increase the deferred price over the current price, and it is also permissible to mention the price of the sale in cash and its price in installments for known periods. The sale is not valid unless the two contracting parties are definite either cash on the spot or by installments for a known period. However, if the sale takes place with hesitation between cash and installments, and there is no definitive agreement on one specific price, then this kind of sale is not permissible according to the Sharee’ah.”

Allah knows best.