Mu' meneen Brothers and Sisters,

As Salaam Aleikum wa Rahmatullahi wa Barakatuh.  (May Allah's Peace, Mercy and Blessings be upon all of you)

One of our brothers/sisters has asked this question:

What about Islamic banking and Islamic car financing.I had read a mail about car financing being haraam.What is the difference between the two. 

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Answer:

Islamic car financing

In the name of Allah, We praise Him, seek His help and ask for His forgiveness. Whoever Allah guides none can misguide, and whoever He allows to fall astray, none can guide them aright. We bear witness that there is no one (no idol, no person, no grave, no prophet, no imam, no dai, nobody!) worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

Islam neither prohibits banking, nor financing, nor car-financing, etc.; but what Allah and His Messenger (saws) have categorically declared absolutely haraam and ‘forbidden’ is the usage and dealings of ‘riba’ (usury, interest, etc.).

Allah says in the Holy Quran Chapter 2 Surah Baqarah verse 274-276:

But those who devour ‘riba’ become like the one whom Shaitaan has bewitched and maddened by his touch. They have been condemned to this condition because they say, “Trade is just like ‘riba”, whereas Allah has made trade halaal and ‘riba’ haraam. Henceforth, if one abstains from taking ‘riba’ after receiving this admonition from his Lord, no legal action shall be taken against him regarding the ‘riba’ he had devoured before: his case shall ultimately go to Allah. But if one repeats the same crime even after this, he shall go to Hell, where he shall abide for ever! Allah deprives ‘riba’ of all blessing and develops charity, and Allah does not like an ungrateful, sinful person.

Allah says further in the Holy Quran Chapter 2 Surah Baqarah verse 278:

O Believers!, fear Allah and give up that ‘riba’ which is still due to you, if you are true believers. But if you do not do so, then you are warned of the declaration of war against you by Allah and His Messenger!

Al-Tirmidhi Hadith 2829 Narrated by Ali ibn AbuTalib

Ali said he heard Allah's Messenger (saws) invoke the curse of Allah on those who took usury, those who paid it, those who recorded it, and those who refused to give sadaqah.

Your Statement: I had read a mail about car financing being haraam.

If one finances one’s purchase of a car or any product through a conventional interest-based bank, whereby the person pays the bank a fixed amount (interest) over and above the value of the car until the bank-loan has been paid; such types of financing which involves the transacting of interest would indeed be considered a forbidden transaction in the Sight of Allah Subhanah.

But if one wishes to purchase a car, and approaches a good reputable Islamic Financial Institution who claim to follow the principles of Shariah, and finance the car through them….such a transaction would be deemed absolutely legal in the Sight of Allah Subhanah.

What makes the transaction haraam or halaal is not the financing, but whether the financing is conventional interest-based or Islamically profit-based. It is the way and manner in which the transaction is structured which would signify the deal as permissible or forbidden.

Whatever written of Truth and benefit is only due to Allah’s Assistance and Guidance, and whatever of error is of me alone. Allah Alone Knows Best and He is the Only Source of Strength.

Your brother and well wisher in Islam,

Burhan