Some car companies lease a car to a person in exchange for him paying, for example, two thousand riyals per month
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The questioner : He says: O honorable Shaykh, some car companies lease a car to a person in exchange for him paying, for example, two thousand riyals per month, and the car is registered in the company's name, and they maintain it, including the oil and other things. If the person continues to lease the car for, say, two years, the company transfers ownership of the car to him. What is the ruling on this transaction?
The Shaykh : This is called by them "leasing ending in ownership," and in our view, it is a forbidden contract. This is because it is a contract that combines two contracts. So, is the one who has the car in his possession the owner or the lessee? In their view, he is both owner and lessee. If he is the owner and the car is destroyed by a divine decree, who is liable for its compensation? It is he, because he is the owner. And if it is the case that he is the lessee and it is destroyed by a divine decree, the liability for its compensation falls on the institution. Thus, the liability for compensation and the opposite of liability converge on a single item, and this does not hold up. Secondly, if he has a final installment and is unable to pay it, what happens? The car is taken, along with the money that was paid initially, and this is injustice. The one who leased or bought it might say: I am confident in myself that I will fulfill the obligation and the car will not return to the company. But we say: Is this guarantee valid? A person may be struck by a calamity, such as illness, the collapse of a house, or something else, that consumes all his wealth and ultimately leaves him unable to fulfill the obligation. However, I have heard, and praise be to Allah, that companies in Europe have warned their representatives in the Kingdom about this transaction, and they have seen a great deficiency in it. So I say: If this is true, praise be to Allah, and Allah is sufficient for the believers in fighting [the enemy]. If it is not true, I warn my Muslim brothers against this transaction.
The car seller might say: If I sell it on installments, I fear that he will play tricks with me, not pay me, and sell the car. We say: Praise be to Allah, this cause has a remedy. What is the remedy? That the car be pledged. That is, the company or the seller pledges the car and takes its registration card, and does not hand it over to him until he has paid the installments due on it. In this way, the transaction becomes valid and in accordance with the Shari'ah. Yes.
The Shaykh : This is called by them "leasing ending in ownership," and in our view, it is a forbidden contract. This is because it is a contract that combines two contracts. So, is the one who has the car in his possession the owner or the lessee? In their view, he is both owner and lessee. If he is the owner and the car is destroyed by a divine decree, who is liable for its compensation? It is he, because he is the owner. And if it is the case that he is the lessee and it is destroyed by a divine decree, the liability for its compensation falls on the institution. Thus, the liability for compensation and the opposite of liability converge on a single item, and this does not hold up. Secondly, if he has a final installment and is unable to pay it, what happens? The car is taken, along with the money that was paid initially, and this is injustice. The one who leased or bought it might say: I am confident in myself that I will fulfill the obligation and the car will not return to the company. But we say: Is this guarantee valid? A person may be struck by a calamity, such as illness, the collapse of a house, or something else, that consumes all his wealth and ultimately leaves him unable to fulfill the obligation. However, I have heard, and praise be to Allah, that companies in Europe have warned their representatives in the Kingdom about this transaction, and they have seen a great deficiency in it. So I say: If this is true, praise be to Allah, and Allah is sufficient for the believers in fighting [the enemy]. If it is not true, I warn my Muslim brothers against this transaction.
The car seller might say: If I sell it on installments, I fear that he will play tricks with me, not pay me, and sell the car. We say: Praise be to Allah, this cause has a remedy. What is the remedy? That the car be pledged. That is, the company or the seller pledges the car and takes its registration card, and does not hand it over to him until he has paid the installments due on it. In this way, the transaction becomes valid and in accordance with the Shari'ah. Yes.