Conditional sale car finance

Following reading the IFG article on car finance*, I wanted to ask if “conditional sale” finance would be permissible to use.
This is like hire purchase as the dealership retains ownership until all repayments are made however the car becomes yours automatically without an option to give it back.
There is no purchase fee.


Going by the article;

1. If there is a clear separate agreement at the conclusion of the hire-purchase agreement to purchase the asset, that is fine. This doesn’t necessarily mean a separate contract, it just means that there is a standalone contractual arrangement on what happens at the end that is unrelated to the hire aspect.
The conditional sale has the lease aspect then at the end of the lease ownership is transferred to the one who has been leasing it.

2. If the leasing company promises to just gift the asset away to the buyer upon the lease expiring, that’s also fine.
Does this mean what the conditional sale format of a hire purchase is?

3. It should be a real lease – not just a cover for what is really a sale.
It is a lease as they retain ownership. The car then becomes the leaser’s property after the lease completes.

Every hire purchase agreement is different so it’s important to read it carefully, but in principle hire purchase agreements should be permissible. But things to watch for include:

1. The lender must own the car. You can’t own it. If you own it, then it is a loan.
The dealership owns it.

2. There needs to be a clear option agreement (or clause) that needs to be exercised at the time and there must be a clear way to walk away from the deal too.
They don’t state this in the contract but UK law says that one is allowed to hand back the car after finishing half of the repayments.

3. There must be a clear separation between the hire aspect of the contract and the purchase aspect of the contract. Ideally it is handled through two separate documents but that isn’t essential as long as its clear there are two clearly separate things at play.
The dealership is just giving the leaser the car at the end of the lease.

Please correct me if I am wrong or misunderstanding anything here.

Thanks for sharing details but in light of the information provided in different types of articles, I would like to seek guidance from knowledgeable individuals on a few questions.
Firstly, is “conditional sale” car finance compliant with Islamic principles? Secondly, does the absence of a purchase fee in this financing arrangement make it more aligned with Islamic values? Additionally, I am interested in understanding how the aspect of ownership transfer without the option to return the car affects the permissibility of this financing method. Lastly, are there any specific conditions or guidelines that should be considered to ensure compliance with Islamic teachings when engaging in “conditional sale” car finance?

I kindly request community members, particularly those well-versed in Islamic finance, to share their insights and provide references to authentic Islamic sources to support their responses. Seeking clarity on this matter will enable us to make informed decisions regarding our financial transactions.