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Can I get a bank loan to buy a car with the bank retaining possession until payment?

Answered as per Hanafi Fiqh by Darulifta-Deoband.com
We are in need to buy a car since it has become a necessity to us now. We cannot afford to buy by paying such an ample amount. So we are planning to take a loan from the bank. Agreeing to the fact that it is haram to give or take interest, looking at the previously answered questions in this category I have a clarification. Suppose the value of the car is 4 lacs and the total amount including the interest is 5 lacs (which becomes the principle amount) if we opt for taking a loan, and we repay in the installments and the possession of the car will be with the organization (bank) until we repay the whole 5 lacs, in this scenario is it permissible to take a loan?.

بسم الله الرحمن الرحيم

(Fatwa: 87/89/D=01/1435)

If the bank, instead of paying loan to you, purchases the car itself and then sells it to you with additional price and you pay the price in instalments, then it is lawful. It means that the bank itself will purchase the car and after taking it in its possession, it will sell it to you. This is a fair transaction. But if it pays the loan amount in cash or cheque (whether it is in your favour or that of showroom), and then you pay to it in instalments with additions, then it is a transaction of interest which is unlawful. In this case, if the car is in the name of bank, then also it will be interest; since the car was issued in bank’s name as security of the loan and in fact the bank did not buy it itself.

Allah knows Best!

Darul Ifta,
Darul Uloom Deoband

This answer was collected from the official ifta website of Darul Uloom Deoband in India.

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