The Book of Sales Transactions

Another Fatwa on selling by Installment Payments

Q: I went to one of the companies that sell cars by installment payments and I bought a car from them. They told me that for cash up front the cost of the car was 50,500 riyals and over payments it would be 54,131 rivals at an increase of 14% on the rest of the sum (that I still owed). I paid them 10,000 riyals and what remained was 44,131 that was divided into monthly installments over 12 months. I received the car and after 4 months passed I happened to think about the increased sum of money and I went to ask them what was the 14%. They told me that it was for bank expenses. Then, I began to have doubt. Was that deal which was made forbidden or lawful?

A: If the buyer agrees to a delayed payment with the car company in that the amount would be 54,131 riyals, and all of it would be the price of the car that he pays in installments or he pays some of it up front and some of it later, then that sale is lawful Islamically. It makes no difference if the delayed payment was more than what the cash payment would be up front.

The Permanent Committee

There is no Harm in selling by Installment Payments

Q: The cars that are sold by the method of installment payments, their price is increased if you buy them by the method of payments. This is like if the price of the car was 15,000 riyals in cash, it will be sold to the person for more than this value price by way of installment payments. Is this sale Riba?

A: There is no harm in selling by installment payments as long as the times of payment are known and the installment payments are known. It makes no difference if the sale by installment payments is more in price than the sale by cash up front, because the buyer and the seller both benefit from the installments. The seller benefits by the increased amount and the buyer benefits by the extra time allotted to pay.

Indeed it has been confirmed in the Two Sahihs from 'A'ishah (Radiyal Lahou 'an-a) that Barirah (Radiyal Lahou 'an-a) was sold by her family (that owned her) by installment payments over 9 years. Each year she was to pay 40 dirhams. That proves the permissibility of the sale by install­ment payments. This is also because it is a sale that contains no treachery, no Riba and no unknown factors. Thus, it is permissible just like the rest of the legislated sales transactions.

Ash-Shaykh Ibn Baz

Selling Cars by Installment Payments

Q: One of the brothers who does business in buying and selling cars by installment payments asks a question saying that he sells the car on the basis of monthly installment payments. In this he makes an agreement with the person who wants to purchase the car on installment payments, and this is due to the person's need to do so. Thus, he agrees with him to the sale before he buys the car for him, guaranteeing his profits first. So, what is the ruling on that?

A: If the sale of the car and similar items is made to the one who wishes to purchase it after the seller owns it, and it is specified by its name, and the seller actually possesses it, there is no harm in that. However, before that (possession by the seller) it is not permissible (to sell it). This is due to the Prophet's statement to Hakeem bin Hizam: "Do not sell what you do not have” (Ahmad 3/402).  It is also due to his (Salallahou 'aleyhi wa salam) statement: "It is not permissible to make a condition of a loan along with a sale, or to sell what is not in your possession" (Abu Dawud no. 350).

Both of these Hadiths are authentic, so it is obligatory to act according to them and to beware of whatever opposes that. And Allah is the Giver of success.

Ash-Shaykh Ibn Baz