Shaikh Abdul-Hameed al-Hajoori (May Allah perserve him) was asked:
We have here an investment contract with meaning that a person purchases a car in the form of leasing/renting, wherein he pays the value of the car in installments for a specific time period. If the time period ends, he owns the car completely. Otherwise the car will be taken back from him and the installments [which he paid] will be considered rent. And this is if he does not pay the remaining amount.
“All praise is due to Allah and may peace and blessings of Allah be upon the Messenger of Allah. I bear witness that there is no God worthy of worship except Allah and bear witness the Muhammad is His slave and Messenger.
As for what follows: the transaction of leasing which ends in ownership is an invalid transaction. That is not permissible due to what is in it of gharar (risk), cheating, and two transactions present in one transaction. It is an apparent action of usury. This type of transaction is not allowed. If it is necessary, then he should should purchase by way of installments. The transaction based on installments is well known, for example, the cost is 10 000 if paid immediately or 12 000 if paid over time, which is paid over a specific time. The majority of the Scholars are of the opinion of its permissibility as I clarified in my book ad-Durar al-Maknoon fi Ahkaam ad-Duyoon.
As for this type of transaction, then it is a prohibited transaction and it is not allowed due to what was previously mentioned. Whoever wants to perform a transaction, then let him perform a transaction with its conditions from which is: mutual consent, as comes in the Hadith. And as Allah says:
إِلاَّ أَن تَكُونَ تِجَارَةً عَن تَرَاضٍ مِّنكُمْ
Except it be a trade amongst you, by mutual consent
The most correct statement of the Scholars is that leasing which ends with ownership is haram and it is a form of the prohibited transaction. Perhaps it will lead to consuming the wealth of the people in falsehood. In this time period, all [it has become such that] the owners do not own a car nor are they able to buy and sell them. This is what I advise and will suffice with. And all praise is due to Allah”
Faisal Ibn Abdul Qaadir Ibn Hassan
Shaykh Saalih Al-Fawzaan was asked:
What is the ruling on purchasing a car through the system of leasing that ends in ownership which the car shows offer or the bank (offers)? And what is the halal form in regards to it?
“There is not something Halal in it. Leasing ending with ownership is haram and there is nothing halal in it. It has two contracts in one contract together: the contract of renting and the contract of buying. Each contract has its rulings and conditions. This should not be gathered with that. Also in it is a mistake and ignorance. He does not know what will the product end up as afterwards. Perhaps it will be consumed or its value will be lost and it will not be equal to anything. This transaction is unknown. Its capital and destination are not known. A fatwa has been issued, rather a decision has been issued by the committee of Senior Scholars that leasing ending with ownership is a prohibited contract. Yes”
Faisal Ibn Abdul Qaadir Ibn Hassan
So what’s the difference between this and charging an interest rate on the real price? Isn’t it the same concept?
This is not riba.
Shaikh Bin Baz rahimahullah was asked:
When cars are sold in installments, their price increases, so, if a car is sold for 15,000 Riyals in cash, it is sold for a higher price than this in installments. Is this sale a form of Riba (usury/interest)?
A: there is nothing wrong in selling by installments, if the period of time and the installments are known (fixed), even if the price by installments is more than the cash price, because the buyer and the seller both benefit from the system of installments. The seller benefits from the increase in price and the buyer benefits from the respite.
It was authentically reported in the Two Sahih (authentic) Books of Hadith (i.e. Al-Bukhari and Muslim) on the authority of `Aishah (may Allah be pleased with her) that “The masters of Barirah (may Allah be pleased with her) agreed to sell her her freedom in installments for nine years, each year paying 40 Dirhams.”
This shows that selling by installments is permissible, because it involves no Gharar (fraud), Riba, or Jahalah (lack of knowledge), so it is permissible like any other sale, if the sold item is owned by and in the possession of the seller at the time of the sale”
It is not considered riba because riba is of two major types: Riba Al-Nasi’ah, Riba Al-Fadl. The first one is the one many people may confuse with the ruling on buying in installments with an increase. This is not the case since riba an-Nasi’ah deals with loans and also selling the same type of item with deferred payment instead of hand to hand.
The Permanent Committee said:
“Riba Al-Nasi’ah is derived from the Arabic root “nasa’a” which means to “delay” or “defer”. This type of Riba falls into two categories:
First: Charging interest on the loan lent to an insolvent debtor. This category was commonly practiced in the pre-Islamic era. A person, for example, may lend another person a sum of money to be paid back on a specified date. When the date agreed upon is due, the creditor gives the debtor the choice either to repay the debt or defer repayment in return for charging additional interest on the principal.
Second: Exchanging two items of the same type which bear the common cause of Riba Al-Fadl while stipulating deferment of delivery of one or both of the exchanged items. An example of this includes exchanging gold for gold or for silver or exchanging silver for gold while stipulating deferment of delivery.
Riba Al-Fadl is derived from the Arabic root “fadl” which means “increase” or “growth”. This type of Riba involves increase in either of the two articles subject to exchange. According to Hadith of the Prophet, six things are susceptible to Riba Al-Fad: gold, silver, wheat, barley, dates and salt.
It is prohibited to charge interest on such transactions where any of the above things are exchanged for articles of the same type. The same holds true with regard to exchanging two articles which bear the same common cause of prohibition. It is, for example, prohibited to exchange a kilo of gold of inferior quality for half a kilo of superior quality. The same is applicable in the case of exchanging a good type of silver, wheat, barley, dates, or salt for a poor type.
It is only permissible to exchange articles of the above mentioned things provided that they are equal in weight and the exchange has to be made in a hand-to-hand transaction.
However, it is permissible to exchange a kilo of gold for two kilos of silver provided that it is a hand-to-hand transaction. This is because gold and silver are of different types. The Prophet (peace be upon him) said,
Gold is to be exchanged for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.
Narrated by Muslim from the Hadith narrated on the authority of `Ubadah ibn Al-Samit (may Allah be pleased with him).
May Allah grant us success. May peace and blessings be upon our Prophet Muhammad, his family, and Companions”
So if the seller decides to increase the original price and then sell it to the buyer for installments due at a fix time, then this is allowed and not riba.
And Allah Knows Best
Faisal Ibn Abdul Qaadir Ibn Hassan