Question:
I have a question that if I have a car and I want to sell it on cash for 2000 but da buyer says that he will pay after 2 months so if I ask him to pay 2200 will it be counted as interest(riba)?
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
If you have already struck the deal with the brother at $2000 and thereafter at the time of payment the brother says that he will pay after 2 months for which you increase the price to $2200, then the addition $200 is indeed riba’ and haram.
However, if the deal has not been finalized, instead you are in negotiations and he puts forth his excuse that he will only be able to pay after 2 months. Hearing this you negotiate by saying that, “If you buy this car on credit of 2 months, then the price will be $2200”, then in this case the extra $200 is not riba’.
Essentially, a cash transaction and a credit transaction are two different sales. While the negotiations are in order, either of them can be chosen regardless of the prices stipulated for each. However, once a decision is made and the deal is concluded, then any increase in the price is riba. Similarly, a condition of additional penalty in case of late payment or any subsequent delay, will also be riba’.
Mufti Taqi Uthmani Saheb explains this in “Introduction to Islamic Finance” as follows:
This position is accepted unanimously by all the four schools of Islamic law and the majority of the Muslim jurists. They say that if a seller determines two different prices for cash and credit sales, the price of the credit sale being higher than the cash price, it is allowed in Shari‘ah. The only condition is that at the time of actual sale, one of the two options must be determined, leaving no ambiguity in the nature of the transaction. For example, it is allowed for the seller, at the time of bargaining, to say to purchaser, “If you purchase the commodity on cash payment, the price would be Rs. 100/- and if you purchase it on a credit of six months, the price would be Rs. 110/-.” But the purchaser shall have to select either of the two options. He should say that he would purchase it on credit for Rs. 110/-. Thus, at the time of actual sale, the price will be known to both parties. 2
However, if either of the two options is not determined in specific terms, the sale will not be valid. This may happen in those installment sales in which different prices are claimed for different maturities. In this case the seller draws a schedule of prices according to schedule of payment. For example, Rs. 1000/- are charged for the credit of 3 months Rs. 1100/- for the credit of 6 months, Rs. 1200/- for 9 month and so on. The purchaser takes the commodity without specifying the option he will exercise, on the assumption that he will pay the price in future according to his convenience. This transaction is not valid, because the time of payment, as well as the price, is not determined. But if he chooses one of this options specifically and says, for example, that he purchases the commodity on 6 months credit with a price of 1100/- the sale will be valid.
Another point must be noted here. What has been allowed above is that the price of the commodity in a credit sale is fixed at more than the cash price. But if the sale has taken place at cash price, and the seller has imposed a condition that in case of late payment, he will charge 10% per annum as a penalty or as interest, this is totally prohibited; because what is being charged is not a part of the price; it is an interest charged on a debt. (Introduction to Islamic Fianance, Pg. 80)
And Allah Ta’āla Knows Best
Mufti Faisal bin Abdul Hameed al-Mahmudi
www.fatwa.ca