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Buying a Car With Interest: Riba?

24 September, 2017
Q

Answer

Wa `alaykum as-Salamu wa rahmatullahi wa barakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.


In this fatwa:

The finance department gives you a loan in fact not it sells you a car. The price 32995 is paid to the car dealer and the loan is given to you at interest in which the amount of interest is: 1032×36=37152-32995=4157. This transaction is haram.

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In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:

There is a missing information in this question which is: the finance department gives you a loan in fact not it sells you a car. The price 32995 is paid to the car dealer and the loan is given to you at interest in which the amount of interest is: 1032×36=37152-32995=4157. This transaction is haram.

On the other hand, a sale of this car at 37152 payable on 1032 a month for 36 month is permissible.

And here is the delicate difference. It is not a formality but a reality. When you take an asset from someone without paying immediately for it you are in fact buying the asset PLUS its utility for the period until you pay for it in full.

If you pay at the time of contract, you will be reducing your other belongings (your asset) and losing the utility of the thing you pay.

But when you do not pay at the time of contract, you will be getting double utility; the utility of the asset you get plus the utility resulting from the asset you keep instead of paying it.

This is imbalance which is not rational and not Islamic. This is why our scholars since day one said that a part of the price is caused by time.

But you must notice that the same does not apply to money or debt because they do not have a utility which they generate on their own. This is why riba (an increment in a debt or loan) is prohibited but a price differential because of postponing the payment is permissible.

Allah Almighty knows best.

About Prof. Dr. Monzer Kahf
Dr. Monzer Kahf is a professor and consultant/trainer on Islamic banking, finance, Zakah, Awqaf, Islamic Inheritance, Islamic estate planning, Islamic family law, and other aspects of Islamic economics, finance, Islamic transactions (Mu'amalat). Dr. Monzer Kahf is currently Professor of Islamic Finance & Economics at the Faculty of Economics and Management, Istanbul Sabahattin Zaim University, Turkey