Ruling on 'zero percent financing' car purchases
Fatwa No: 320308

  • Fatwa Date:15-3-2016 - Jumaadaa Al-Aakhir 6, 1437
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Question

Assalaamu alaykum wa rahmatullaahi wa barakaatuh. These days, in the UAE, car manufacturers are teaming up with a few banks to bring so called '0 percent' financing. In traditional financing, like murahaba, for example, the car manufacturer gives a discount to the buyer from the original 80,000 to 70,000, which is a 10,000 discount, and the Islamic Bank Finances it at a 2.5% fixed profit rate per year for 4 or 5 years. The buyer in the end has to pay approximately 80,000, which was the case in the first place. For the '0 percent' financing, the car manufacturer is giving the same discount to the bank instead of the buyer. Therefore the bank buys the car for 70,000 and then gives the '0 percent' profit rate loan to the buyer at 80,000. For the customers, it seems they are getting the loan amount without any interest/profit rate involved. Does this method have any advantage over the other? May Allaah reward you.

Answer

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His Slave and Messenger.

The transaction in reference is not clearly described in the question. There are two possible scenarios. The first is that the manufacturer sells the car to the bank for 70,000 and after the bank buys it and takes it into its possession, it sells it to the client for 80,000. This is a muraabahah transaction and there is no religious impediment to partaking in it as long as no fines are imposed on delayed payments. Please, refer to fatwa 216769.

The second is that the bank pays the 70,000 to the manufacturer on behalf of the client or gives him the money in cash form (to buy the car himself) and then takes it back as 80,000. This is interest. The fact that the car manufacturer is giving the same discount to the bank that he gives to the client is irrelevant unless the bank buys the car with a valid and actual sale transaction from the manufacturer and then sells it to the client. However, if the bank merely pays the price of the car to the manufacturer on behalf of the client, then this is considered a loan. What counts is the amount paid on his behalf, and whether a discount is granted or not, it is for the client and not the bank. That is because the bank is only an agent for the client in making payments.

Prohibited tricks do not make dealing in interest lawful; on the contrary, it increases the gravity of the sin as it resembles the actions of the Jews who used to employ tricks in violating the prohibitions of Allaah. The Prophet  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) said, "Do not commit what the Jews have committed and violate the prohibitions of Allaah using the meanest of tricks." [Ibn Battah] It was narrated on the authority of Ayyoob As-Sakhtiyaani  may  Allaah  have  mercy  upon  him that he said, "They try to trick Allaah as if they are tricking young boys; were they to commit the sin bluntly, it would have been less grave..." [ʻAwn Al-Maʻbood ʻala Sunan Abu Daawood]

Allaah knows best.

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