What is the ruling on installment sales where a percentage is added to the remaining balance?
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The questioner : And this person says: What is the ruling on selling cars on installment if the method is that they ask how much you will pay as a down payment? You say, for example, twenty thousand riyals, and the rest of the car's value is sixty thousand riyals. This amount has nine percent added to it, to be paid in installments over three years, making it eighty thousand riyals. So the discussion is about the remaining balance, not about the cash value of the car and its value on credit. We ask for clarification.
The Shaykh : First: We say that if the car is not with the seller, but he tells you, "Go to the showroom and choose the one you want, and I will buy it from the showroom and then sell it to you," then this is forbidden, and there is no doubt in it, because it is a clear stratagem to circumvent riba (usury or interest). For the one who sold it to you is as if he is saying, "I will lend you the value of the car for such and such," but he made the purchase a stratagem. So there is no doubt in its prohibition, even if some people have issued a fatwa permitting it. I consider that a fatwa to be an error that is not valid. Everyone knows that this is a stratagem. Instead of saying, "Take these fifty thousand, buy the car, and then I will sell it to you for sixty thousand on credit," he says, "I will buy it and then sell it to you." And did he have the intention to buy it beforehand? The answer is no; if it were not for you, he would not have bought it, and it never occurred to him to buy it. So if the car is not with the seller, then this is forbidden because it is a stratagem, and there is no doubt in it. The person must fear his Lord and know that Allah knows the treachery of the eyes and what the breasts conceal. And Allah knows that the one who sold it to you did not intend anything but riba, which is the increase. But if the car is with him, he may sell it for whatever he wishes. He may say, "It is worth fifty now, and I am selling it to you for eighty over three years, or more, or less," because he is free with his wealth. However, the scholars differed on whether the buyer intends the money, meaning he buys the car on installment and then sells it immediately to get the money. They call this the issue of tawarruq (a commodity sale used to obtain cash). According to Shaykh al-Islam Ibn Taymiyyah (may Allah have mercy on him), that is forbidden, and it is a narration from Imam Ahmad. Based on this, it is not permissible. As for the one who buys the car in order to use it or to utilize it for himself, then there is nothing wrong with it, and he has done nothing wrong, whether the increase is large or small.
The Shaykh : First: We say that if the car is not with the seller, but he tells you, "Go to the showroom and choose the one you want, and I will buy it from the showroom and then sell it to you," then this is forbidden, and there is no doubt in it, because it is a clear stratagem to circumvent riba (usury or interest). For the one who sold it to you is as if he is saying, "I will lend you the value of the car for such and such," but he made the purchase a stratagem. So there is no doubt in its prohibition, even if some people have issued a fatwa permitting it. I consider that a fatwa to be an error that is not valid. Everyone knows that this is a stratagem. Instead of saying, "Take these fifty thousand, buy the car, and then I will sell it to you for sixty thousand on credit," he says, "I will buy it and then sell it to you." And did he have the intention to buy it beforehand? The answer is no; if it were not for you, he would not have bought it, and it never occurred to him to buy it. So if the car is not with the seller, then this is forbidden because it is a stratagem, and there is no doubt in it. The person must fear his Lord and know that Allah knows the treachery of the eyes and what the breasts conceal. And Allah knows that the one who sold it to you did not intend anything but riba, which is the increase. But if the car is with him, he may sell it for whatever he wishes. He may say, "It is worth fifty now, and I am selling it to you for eighty over three years, or more, or less," because he is free with his wealth. However, the scholars differed on whether the buyer intends the money, meaning he buys the car on installment and then sells it immediately to get the money. They call this the issue of tawarruq (a commodity sale used to obtain cash). According to Shaykh al-Islam Ibn Taymiyyah (may Allah have mercy on him), that is forbidden, and it is a narration from Imam Ahmad. Based on this, it is not permissible. As for the one who buys the car in order to use it or to utilize it for himself, then there is nothing wrong with it, and he has done nothing wrong, whether the increase is large or small.