Shaykh Saalih Ibn Muhammad al-Luhaydaan, may Allaah preserve him, was asked the following question:
This is a questioner from france who says: I purchased a car without any interest. However, if I fail to pay the monthly payment in its fixed time, they add an additional fee to the original amount. So what is the ruling of this?
With no doubt you entered the contract upon the basis of paying ribaa. And the Messenger of Allah sallahu alayhi wa salam cursed the one who writes Riba, the one who consumes it, the one who pays it, and the one who witnesses it. And you made the contract upon the mutual agreement that you shall pay ribaa with no doubt about it. If you are capable of finding any way out of this problem, then it is upon you to do so. And being they aren’t looking at if it is halal or haraam, they are going to demand from you the amount of money (you owe them).
The Lajnah ad-Da’imah was asked the following question:
I bought a French equipment of the type BeCline from the Arab Car Agency for 430,000, paying a part of it in advance and the remainder by monthly installments of 28,000. In case there is a default on payment of any installment according to the documents I signed, I will be charged an interest rate of 2%. In fact, I was not able to pay off all the installments in the three years period, and I still owe them 90,000. Please inform me about the interest of 2%. Are they entitled to it or is it illegal so that I may not pay it?
If the reality is as you have mentioned, charging an interest of 2% in case of default on payment of the due installment falls under Riba (usury/interest) which is prohibited according to the Qur’an, Sunnah and consensus of scholars. Accordingly, it is impermissible for the Arab Car Agency to take it. Thus, such a usurious transaction is prohibited and illegal. Allah (Exalted be He) said:
...whereas Allâh has permitted trading and forbidden Ribâ (usury).
May Allah grant us success. May peace and blessings be upon our Prophet Muhammad, his family, and Companions.
The Permanent Committee for Scholarly Research and Ifta’
A Side Note: Nowadays, many business contracts contain this condition of paying a late fee if there is a delay in the payment. In this case, one should try his best to avoid what he can of this. As for that which he is trialed with and does not find any substitute for, then perhaps the sin will be upon those who have trialed the people with it. And Allah knows best.
AbdulFattaah Bin Uthman