Car Loan Paid Directly by a Bank: Permissible?
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Car Loan Paid Directly by a Bank: Permissible?



Reply Date

Nov 16, 2017


As-salamu`alaykum. I am a Muslim lady working in a commercial bank that lends loans as well as asset finance. I wanted them to buy a vehicle for me and they accepted to transfer the money to the vehicle seller meaning I am not receiving the money directly from them. However, when I am repaying the money, they will charge me an interest at the rate of 5 %. Kindly, clarify for me if it's haram to take such a loan.



Car Loan Paid Directly by a Bank: Permissible?

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:

As for the case of dealing you are asking about, the direct payment of the bank to the car seller does not affect the loan; it is still an interest-based loan which is unlawful (haram).

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.

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

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