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.
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