Salam,
Jazakallah Khair for the article on car finance on IFG.
I can see that it was concluded ‘APR’ is a cosmetic issue. Even though the monthly payments for hire purchase would have a ‘principle value’ and an ‘interest value’ with the principle value you pay towards the value of the car increasing each month and the ‘interest’ portion decreasing each month, the monthly price remains the same over a fixed period of time for the hire purchase. In a hire purchase, as the car is not owned by you and owned by the finance company, it is in effect a true hire purchase with you paying the finance company monthly to lease the car and having the option to buy in the end.
I understood from the article the case of hire purchase being halal with the ‘interest’ and ‘APR’ being cosmetic issues when really they could be classed as administration fees for example seeing as the interest is not based on the LIBOR rate. In essence, fixed 0% car finance deals like interestfree4cars.com just take the additional ‘APR’ and add it on to the fixed price of the car and divide it over monthly instalments where as a conventional hire purchase will actually breakdown to you the total cost of the car and also the ‘total cost of finance’ which will ultimately be added to the total cost of the car which you will pay back in monthly instalments.
What about companies like Zuto car finance (www.zuto.com) which aim to source finance deals for hire purchase from a multitude of finance providers as compared to only being limited to the finance companies available from a dealership. Again the finance company would own the car and you would pay a monthly fixed payment ‘principal+interest’ over a fixed term. Would such an avenue be halal to pursue?
It has also been the old adage that buying a car on cash is always best. But considering the fact if some people have successful investment portfolios in shariah compliant stocks which may be yielding greater than 30% per year, it may be financially beneficial to put savings into these investments as opposed to buying outright a car, because even with an APR of 5-8% on a hire purchase deal, you would still be netting an overall profit on your investments if you put your savings into them rather than buying the car outright.
Jazakallah Khair and I look forward to the response