Hadith

Buying a car with installment payments at a higher price: Is it Halal?

If you’re shopping for a car and trying to avoid interest-bearing debt it’s likely that advertisements claiming 0% APR (Annual Percentage Rate) car financing have caught your attention.
Naturally, the savvy Muslim consumer should ask: is there a catch to this and is it truly Halal?
If you’re in this position you’re in luck because I’m about to answer these two questions for you so keep reading…

Murabaha: Halal or Haram?

Islamic banks that use this product claim it’s not interest because the amount that Adam owes is fixed and does not increase if he is delinquent on payments. Therefore, we are simply looking at a standard sale wherein a trader buys an item for one price and sells it for an increased price.
Put differently, the argument for Murabaha is:
Does Islam allow someone to buy a car for $10,000 and sell it for $12,000? Yes.
Does Islam allow someone to make a purchase on a deferred payment basis? Yes.
From 1 and 2, neither the bank nor Adam has done anything wrong and Murabaha is permissible in Islam.
Not so fast.