Q: I have been looking around for 0% interest car finance. One of the dealers is offering me a 0% deal where by the car I want is £10,495. I put in a deposit of £2500 and additionally anything the dealer offers for my old car, and then pay a monthly figure of around £164.92 (this is approximate because no deal has been confirmed) for 5 years (48 months). At the end of the term the car is mine and that’s it. Effectively like an interest free loan. I myself have no involvement in interest neither will the contract have any interest payments etc. Would this be permitted?
A:
الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب
The standard practice in 0% car finance deals is for the dealer to arrange 0% finance through a third party financier where the amount borrowed is the amount returned. However, if the client defaults on payment there is then a penalty payment. This penalty payment clause is a contingent riba clause and so, in its current form, it is not Sharia compliant. This can be remedied by introducing a unilateral promise to donate to charity as a deterrent for default.
And Allah knows best.
Mufti Mohammed Zubair Butt
Chair, Al-Qalam Sharia Scholars Panel