1)A bank is willing to finance me for a car at a fixed rate over 48 months. The rate is calculated at a percentage (2% over prime) and remains fixed over the period even if the interest rate changes. The Car’s onwership/title remains with the bank until final payment. Am I allowed to accept this type of agreement? 2)According to the bank (reserve bank laws) I have to insure this financed car. Would it be ok to then accept it with insuring the car?
1. Such finance schemes are permissible on condition that the bank in effect purchases the vehicle from the dealer and resells it to you at a profit whilst you are required to pay a monthly instalment that is predetermined by agreement between both parties.
Also, since it was resold to you, you are the current owner of the vehicle, even if the log book is kept by the bank. Only with these conditions will the financing be in order.
2. We suggest you request the bank to take out insurance and add the monthly premium to the cost of the vehicle.
and Allah Ta’ala Knows Best
Mufti Muhammad Kadwa
FATWA DEPT.