Buying a car using an Islamic Loan

I am living in DUBAI
I want to buy a car, here a system in UAE that some banks have common offer in the name of Islamic finance that they first purchase the car from car dealers like 73000 AED and they give this car at the price of 92000 AED in the monthly instalments of three years, car will be continue mortgage in bank till the end of all instalments. Is this system permissible in ISLAM?

In the name of Allah, the most Beneficent, the most Merciful.

 

Answer

Saaidina Ibn Masud Radiallahu Anhu narrates that the Prophet of Allah Sallallahu Alahi Wasalam, said: “Every two loans extended by a Muslim to another count as one charitable payment.” (Sunan Ibn Majah)

Saaidina Abu Hurayrah Radiallahu Anhu narrates that the Prophet Sallallahu Alahi Wasalam, said: “whoever relieves the hardship of a Muslim in this life, Allah will relieve one of his hardship on the day of judgement; and whoever eases a financial difficulty for a Muslim, Allah will relieve his difficulties in this life and the hereafter…” (Sahih Muslim & Sunan Abi Dawud)

The Islamic Loan is based on two principles, which is compatible with the Qur’an or Hadith.

Briefly, they are Murabaha and Ijarah. Murabaha is where the bank buys the item, which you need, the loan for at a set price and immediately sells it on to the client at a higher price. This is paid back in instalments and deemed to be a sales transaction.

Ijarah is where the bank and the client both purchase the item which you need the loan for and the client pays rent to the bank for its share and also payments in instalments towards the purchase of the item until the client pays the entire price of the banks share, and the rent paid in this period would be considered the bank’s profit.

With regards to your question, if the Islamic Loan is compatible with the aforementioned principles then it will be permissible for you to buy this car using the aforementioned scheme.

Only Allah Knows Best

Mohammed Tosir Miah

Darul Ifta Birmingham

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