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:
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
Interest-based loans are not permissible in the Shari`ah. The prohibition is clear and obvious in the Qur’an and the Sunnah. A loan does not create additional value and cannot earn any increment.
Payment directly to the car seller is a practice of all interest-based banks not only your bank; this is a payment on your behalf after the loan is decided to be given to you.
It does not affect the fact that it is an interest-based loan. What makes a basic difference is that the bank must buy the car for cash and sell it to you on installments at a higher price. This is permissible and this is what the Islamic bank in Kenya does.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.