I had previously contacted you concerning my parents who want to buy a car, but it has a 4.9% interest rate on it. We told the car dealer (who also turned out to be a Muslim) that we cannot pay interest because of religious reasons, so he took the combined interest price and added it to the overall price of the vehicle. This makes it more difficult to buy the car, because of the higher monthly payments. Also, isn’t raising the price of the car just like paying interest, but not calling it interest? What should we do?
In the name of Allah, Most Compassionate, Most Merciful,
If at the time of agreement, a price is fixed in a way that it does not change during the course of the payment period, then this is permissible.
The car-dealer has a right to sell his car at whatever price he wishes. This also includes him considering the interest rate and charging the combined price.
This is not considered Riba, as the price has been fixed. What is not permissible is that the price of the car is not determined, and the debtor is charged an excess amount due to late payment.
And Allah Knows Best
[Mufti] Muhammad ibn Adam
Leicester , UK