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:
1- Riba (interest on loans) is prohibited by the texts of the Qur’an and the Sunnah. Therefore, a Muslim needs to keep far away from dealing with riba.
2- With regard to your question, yes it is plain usury; it is no more a sale on installments because you take a loan from the bank and pay in cash.
Responding to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, stated:
Yes it is plain usury; it is no more a sale on installments because you take a loan from the bank and pay in cash. Alternatives available in America are leasing with option to buy at the end of lease; it is about the same cost.
We also have no interest financing; many advertisements on this come during this time of the year end. We also have some car dealers who have their own finance companies that you deal with one de facto entity, rather than a loan from another entity.
The difference is not only formality. Rather there is a big difference between a sale and a loan. A loan is giving a debt and a debt does not create any increment. A sale always creates an added value whether it is cash sale or sale on credit.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.