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Buying A Car From The Bank With A Down Payment To Show Commitment

Islamic Rulings - Living Shariah Verdicts

Islamic Questions & Answers


The customer chooses a car from the dealership, then the invoice for the car is issued in the name of the bank, and the car is purchased in the bank's name, then it is re-sold (by the bank) to the customer with a profit margin, as a muraabahah transaction. The invoice comes before the contract is drawn up, i.e., the bank buys the car before it re-sells it to the customer with an increase of 8.5% on the price. But the customer makes a down payment of 20% of the value of the car in advance, before the bank even pays a single penny to the dealership. When the bank receives the invoice for the car, the bank withdraws that 20% from the customer's account and adds the remainder of the price and pays it to the dealer, and the car remains in the bank's name until the customer has paid its price in full, by instalments.

Praise be to Allaah.

Firstly:

This transaction is called "muraababah initiated by the purchaser", and there is nothing wrong with it, provided that the bank owns the car and takes possession of it before selling it to the customer, and that the contract is free of any stipulation of penalties in the event of late payment, and that the purchaser does not sign a contract obliging him to buy from the bank. This has been discussed in the answer to question no. 129312 and 140603

With regard to the down payment made by the customer before drawing up his contract with the bank and even before the bank takes possession of the car, if this down payment will not be returned in the event of his changing his mind, then this comes under the heading of consuming wealth unlawfully, because the down payment – according to those who regard it as valid, namely the Hanbalis – is only binding by means of the contract and not by mere promises. This has been discussed in the answer referred to above.

But if what is meant by the down payment is confirming serious intent to buy and it will not be withheld from the customer in the event of his changing his mind about buying, apart from an amount of money to compensate for actual harm, then this is permissible according to a number of scholars.

It says in al-Ma‘aayeer ash-Shar‘iyyah (p. 134): It is permissible for the bank to require the one who intends to rent something to pay a certain amount to the bank which it then keeps as a guarantee of commitment on the customer's part to carry out his promise of renting and other related obligations, provided that nothing is to be deducted from it except an amount that is commensurate with actual harm so that – if the customer changes his mind – he will then be charged the difference between the agreed rent of the item that he was going to rent and the actual rent fees collected by renting it to someone else, or – in the case of selling – he will be charged the difference between the price he had agreed to and the price for which it was sold (to someone else). This down payment to demonstrate commitment is like a trust to be kept with the bank, in which case it is not allowed to dispose of it, or it may be regarded as a trust to be invested with the permission of the customer, on the basis of a legitimate mudaarabah (shared profit) agreement between the customer and the bank. It is also permissible to make an agreement with the customer, when the rental contract is drawn up, to regard this money as part of the instalments.

On p. 147 it says: The basis for the bank requesting a sum of money from the one who wants to rent is the need to confirm his commitment, because the promise of commitment will result in financial repercussions if he changes his mind and the bank will be compelled to ask him to pay for losses or damage, and he may delay such payment. A fatwa concerning this matter (down payment) has been issued by the United Sharee‘ah Council of al-Barakah. This also applies to renting. End quote.

Secondly:

There is nothing wrong with leaving the car registered in the name of the bank until the customer has paid off all instalments. This comes under the heading of collateral which is kept until the price has been paid. But we confirm that the customer becomes the owner of the car as soon as the contract is drawn up.

See also the answer to question no. 69877.

And Allah knows best.

Selling products by instalment for the cash price through the bank

Here one company offering installment for their product for the price of cash. Means if a item is SR 3000, we have to pay SR 250 per month. No extra charge. But the installment is offered through one bank which is not islamic. (Bank will buy the item from the company & sell it to us & we have to pay monthly amount to Bank) My question is it halal to take such installment from from bank. Is it permissible to take money from bank which is dealing in RIBA?.

Praise be to Allaah.

Bringing the bank into this transaction must involve one of three possibilities:

1. The bank is the means of purchasers' payments reaching the company, so the purchaser pays what he owns through it (the bank), and the bank is not asking for it or selling anything to him. In this case the bank is acting as an agent of the company in collecting the instalments. There is nothing wrong with this.

2. The bank is selling, in the sense that it purchases the product first from the company, then it sells it to the customer. This is permissible subject to three conditions:

a. that the bank buys the product before selling it to the customer;

b. that it does not sell it on the premises of the company; rather it should move it to its own premises or to another place, because of the report narrated by al-Daaraqutni and Abu Dawood (3499) from Ibn ‘Umar (may Allah be pleased with him) who said: I bought some olive oil in the marketplace and when it came into my possession I was met by a man who offered me a good profit for it, and I wanted to make a deal with him, but a man behind me took hold of my arm. I turned around and saw that it was Zayd ibn Thaabit. He said: Do not sell it where you bought it until you take it to your place, for the Messenger of Allaah (blessings and peace of Allah be upon him) forbade selling goods where they were bought, before the merchants moved them to their places. This hadeeth was classed as hasan by al-Albaani in Saheeh Abi Dawood.

c. That there should be no stipulation of a "late payment penalty" in the event of any delay in paying off instalments.

3. The bank is financing the customer. If the bank is not taking any interest from him, then this is a qard hasan (goodly loan) and it is permissible, on condition that no late payment penalty is imposed in the event of any delay in repayment, because late payment penalties are riba, which is haraam.

For more information please see the answer to question no. 126950.

To sum up: it is essential to know the nature of the bank's involvement in this transaction and to pay attention to the conditions that we have mentioned. Then, if the transaction is halaal, it will not matter if the bank deals with riba -- because the Prophet (blessings and peace of Allah be upon him) used to deal with the Jews, who consume riba -- so long as the dealings with them do not go beyond the bounds of what is permissible.

And Allah knows best.

 

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