Interestfree4cars HP plan

Everyday Islamic Finance
#1

Assalamualaikum, inshaAllah you are well.

I was watching your video on car finance and didnt quite understand where interest free 4 cars was mentioned and how they operate and whether it is permissible or not.

I have basically bought a car from them its a 0APR contract and 0% fixed interest, im still in the process of purchsing the car. Now i am not sure whther the contract i have signed is permissible or not.

They have basically organised finance for me through a company. This company now owns the car and is hiring to me. I have agreed to pay deposit, the remaining will be paid over 60 months term. Then at the end the car will be mine. (There is no final or balloon payment).

I have read that i can walk away from the contract any time.

Lender will own the car which is stated in the contract (though sales advisor keeps on insisting that I will be the owner, lender will have some authority if i dont pay the loan back) didnt quite understand why she is saying that tbh.

There is also late payment fee clause, they will charge £12 if a payment is missed. Though i am certain i wont miss any payments inshaAllah.

Just wanted to find out if it is permissible to enter in these type of contracts. I do have 14 days to come out of it.

If you could reply back in your earliest convivience, it will be highly appreciated.

Jzk

#2

Wa alaykum salaam,

Whilst I cannot comment with certainty on the Shariah compliance without reviewing everything meticulously, your following statement is concerning:

“They have basically organised finance for me through a company. This company now owns the car and is hiring to me. I have agreed to pay deposit, the remaining will be paid over 60 months term. Then at the end the car will be mine. (There is no final or balloon payment).”

If they are owning the car in the beginning, then you are either leasing the car from them, or have taken a loan to pay for the car whilst you put the car as collateral.

And further, there is no mention of a separate sale contract at the end of the term. Without another sale transaction, it doesn’t make sense that it is a lease, rather it seems closer to it being a loan with your car placed as collateral and released at the end of the term.

For Shariah compliance, there must be a lease and a separate sale at the end. Financing is possible, but the finance should work in a way where the finance company buys the car outright, leases it to you with a mark up, and then you have the option to buy the car by entering into a sale transaction as the end. Note, being the registered keeper doesn’t mean you own the car.

Allah knows best