Is it haram to finance a car? There is a huge array of car financing and leasing options on the market for those who do not want to buy a car outright. For Muslims, the car finance options available can be difficult to navigate, especially if they want to finance and lease options that are not in contravention of Islamic finance options.
Is it haram to finance a car?
Islamic car finance operates to enable people to use their money wisely and spread the actual cost of financing the car whilst ensuring that they do not pay interest on the finance option they have chosen.
Drivers can take advantage of car finance deals whilst also adhering to Islamic Sharia rules relating to interest, the payment, receipt of the prohibited, and speculation. The halal car finance market is aimed at those people who want Sharia-compliant finance options.
Essentially, for those people who do not have the cash to buy a car outright, or those who do not want to buy a car by paying cash, Islamic finance ensures that people can spread the cost of the car without breaching Sharia rules. Is it haram to finance a car? A Muslim is not allowed to benefit from lending money or receiving money from someone.
This means that earning interest (riba) is not allowed – whether you are an individual or a bank. To comply with these rules, interest is not paid on Islamic savings or current accounts, or charged on Islamic mortgages. Halal car finance – often referred to as Islamic car finance – enables you to purchase a new or used car, without having to pay cash, while adhering to the principles of Sharia law.
However, care must be taken to ensure that the method of finance is compatible with the faith. In Islam, money has no intrinsic value. A Muslim isn’t allowed to benefit from lending money or receiving money from somebody else. In other words, a bank or individual cannot charge interest (known as ‘riba’ in Arabic) when lending money.
Renting an asset is permissible, but renting money is strictly prohibited in Islam. Islamic car finance can take the form of a personal loan. This is often called Murabaha, which is cost-plus financing, where the bank or finance company supplies the car at a price that includes a margin above the original cost.