The Ruling on Penalty Clauses in Sales and Purchases

Question:
This is a listener who sent two questions. In the first, he asks: Is a penalty clause permissible in sales and purchases? For example, when a person buys something from another person, or sells something to another person for a limited term, and if he delays beyond the agreed date, an increase is added to the amount. What is the ruling on this practice?

Answer:
This is the riba (usury or interest) of the pre-Islamic age of ignorance (jahiliyyah), and it is not permissible. If the debtor does not pay the debt when the term arrives, an increase is added to it, and the term is extended. This is the riba of the people of the pre-Islamic age of ignorance, who would say, "Either you pay, or you delay." They would increase the amount of the debt and give him more time. Allah (Exalted and Majestic is He) has forbidden this and threatened it with the most severe warning. When the term arrives, if the debtor is well-off, it is obligatory for him to pay. If he refuses, he is compelled to pay, even if this leads to the ruler intervening, taking from his wealth, selling it, and paying off his debt. Yes.
His saying (peace and blessings be upon him): "The one who has the means to pay commits injustice, and his honor and punishment are lawful." The one who has the means is the rich, and his delay is injustice. As for if he is unable to pay, it is obligatory to grant him a delay without an increase. And His saying (Glorified and Exalted is He): . Yes.