Vehicle finance
Category:
Business Dealings & Money Matters
According to Madhhab:
Hanafi
Reference:
1440-580
Question:
I
am.planning to buy a car but not sure about the financing option.
Details are as follows:
Car show room/ Garrage.is offering me a finanace of £10,000(as an example) for
a period of 36 months(3 years). Thry have fixed a rate of 4% on this 10,000.so
in 3 years,I will be paying £11,200. This will be spread over a 3 year period
with fixed monthly instalment of £311(per.month).
My question is: are we.ok to buy the used car with such above mentioned
arrangements? Is it permissible?
am.planning to buy a car but not sure about the financing option.
Details are as follows:
Car show room/ Garrage.is offering me a finanace of £10,000(as an example) for
a period of 36 months(3 years). Thry have fixed a rate of 4% on this 10,000.so
in 3 years,I will be paying £11,200. This will be spread over a 3 year period
with fixed monthly instalment of £311(per.month).
My question is: are we.ok to buy the used car with such above mentioned
arrangements? Is it permissible?
Answer:
1. In the queried scenario, we assume that the car dealer is acquiring finance from some finance company on your behalf and you will then be required to meet the monthly installments until the amount is settled in full. In this case, the finance provider will pay the dealer 10 000 Pounds for the vehicle. You will then reimburse the finance company for the capital amount plus an additional amount of 1 200 Pounds. Such a transaction falls in the category of an interest based transaction which is obviously impermissible.
2. The transaction could be corrected by adopting the following procedure; the finance company purchases the vehicle directly from the car dealer for 10 000 Pounds, and after taking possession of the vehicle they sell it to you for 11 200 Pounds which will be paid by you in fixed monthly installments of 311 Pounds over a period of 36 months. This option is acceptable with the proviso that they do not levy any form of penalties in the case of default. This in essence means that the amounts of 11 200 Pounds will always remain the full and final amount of payment.
3. If the car dealer is providing the finance himself, then he may sell the car to you at a fixed price of 11 200 Pounds which will be paid in fixed monthly installments of 311 Pounds over a period of 36 months. In this case, it will be a straight forward credit sale between the car dealer and yourself, but due to buying on credit the price differs from the cash price. However, this option is also in order.
By adopting any of the above procedures (explained in # 2 & 3) the transaction will be in order and in accordance to Shariah. However, if our understanding of the sale or finance is different to reality, then we request you to forward the relevant details and we will try to provide a ruling accordingly.
AND ALLAH TA’ALA ALONE IN HIS INFINITE KNOWLEDGE KNOWS BEST
ANSWERED BY: Mufti Mohammed Desai
CHECKED AND APPROVED BY: Mufti Muhammed Saeed Motara Saheb D.B
Date: 30 Dhul Qa’dah 1440 English Date: 02 August 2019