Buying on installments
Fatwa No: 82986

  • Fatwa Date:28-6-2001 - Rabee' Al-Aakhir 7, 1422
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Question

I want to buy something for my children (bedroom). It's price = x if I buy it completely, and it's price = x + 5% of (x/2) if I take it now and pay it off into monthly payments. Is this "RIBA"? Please, your answer is very important for me.

Answer

Praise be to Allah, the Lord of the Worlds; and blessings and peace be upon our Prophet Muhammad and upon all his Family and Companions.
It is permissible for a person to sell an article of merchandise or to purchase it for a known period even if the price of its sale or that of purchase after some time increases over its present price of sale or that of purchase. For, it is known that time has a role in the ups and down of rates. The principles of Sharia agree to this and the human beings' benefits are ascertained through it. But it's a condition that the sale itself be done according to Sharia.
The two parties have to decide and agree to the mode of payment before the confirmation of the contract whether it is in installments or cash. The lack of confirmation with either of the modes, along with giving the choice to the buyer between the two parties is considered as 'two transactions in one deal' and the Prophet has prohibited that. We can see it in the traditions reported by Abu Da'ud, Tirmdhi. Narrated Abu Hurairah: the Prophet said, "The one who commits two transactions in one deal, commits usury.
1) Every thing sold must be permissible according to the Sharia.
2) It must be from its owner or a person allowed to act on his behalf.
3) The installments must be known (if any), so also must be the fixed period.
Sales through installments are permissible, when they are done according to the principles of Sharia. Such as:
1) You buy a house for certain rate, which you would pay in installments, or pay some of its price in cash instantly, and the rest in installments. And there is no harm in paying back in installments even though the price is more than the current payment. For instance, the price of the house is presently 50,000, and its price through installment is 70,000.
2) That you buy a house through a mediator whom you inform about the house, which you want to buy. Then he buys the same house (through a lawful transaction process) for the limited amount of 50,000, for instance, and then he sells it to you through installments for 70,000. There is no objection in that too.
3) It is not permissible to purchase through installments, from usury-taking banks, or the like. Since, these institutions do not purchase the house through lawful means, but pay the amount on your behalf, and retrieve from you that amount with its interest in installments.
The reality behind this transaction is that the bank has loaned you the price of the house, 50,000 for instance, in return that you pay it back 70,000 thousand. This is usury loan, which is prohibited.
The difference between these types is that the bank or other institution or the person in the first and the second types, buy the commodity through the valid purchase method and sells it to you.
And in the third type, they do not buy it in the real sense of purchasing, but give you the amount of the price of that commodity as a loan in return to adding interest to it.
Allah knows best.

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