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:

Dear Brother,

I m really stucked in this question. The issue is car leasing and credit cards that people use. some people say that car leasing from bank doesnt involve Riba and the argument they give for it is that extra money you pay to the bank is actually a rent of the car you are using. Same is the case of House building loan. In both cases, the property is under the custody of bank.

The other thing is the credit card. Can you please help me out in this matter as it is really confusing me. 

(There may be some grammatical and spelling errors in the above statement. The forum does not change anything from questions, comments and statements received from our readers for circulation in confidentiality.)

Answer:

Leasing mortgage riba car house interest

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 none worthy of worship but Allah Alone, and we bear witness that Muhammad (saws) is His slave-servant and the seal of His Messengers.

Dear and beloved brother in Islam, before we try to address your specific questions we would like to clarify at the outset that Allah and His Messenger (saws) have declared every aspect and every manifestation of the abomination of ‘riba’ (usury and interest) as absolutely forbidden for the believers who sincerely fear Allah and the Last Day; thus let no one convince you otherwise!!!

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!

Allah says in the Holy Quran Chapter 4 Surah Nisa verse 161:

That they took ‘riba’, although they were forbidden. And that they devoured men’s substance wrongfully. We have prepared for those among them who reject faith a grievous punishment (of Hell Fire)!

Allah Says in the Holy Quran Chapter 3 Surah Ale-Imraan verses 130-132:

130 O ye who believe! Devour not ‘riba’ doubled and multiplied; but fear Allah; that ye may (really) prosper.

131 Fear the Fire which is prepared for those who reject faith.

132 And obey Allah and the Messenger; that ye may obtain mercy.

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.

Now to address your specific questions:

1. The issue of ‘leasing’ (car, house, property, etc.)

2. The issue of ‘mortgage’ (car, property, etc.)

3. The issue of ‘credit cards’

Q-1: The issue is car leasing …. some people say that car leasing from bank doesnt involve Riba and the argument they give for it is that extra money you pay to the bank is actually a rent of the car you are using.

The concept of ‘leasing’ or Arabic ‘Ijarah’, under certain conditions, is absolutely lawful in Shariah. For example: when one takes a car (or any other product) on ‘lease’ or ‘ijarah’ from a bank or any other institution, the car actually belongs to the institution and the person pays the agreed rent only for as long as he uses the car. Such ‘leasing’ of the car does not involve the receiving or paying of interest, and would thus be considered lawful in the Sight of Shariah.

Example: The original cost of the car is $10,000.00; the bank buys the car and leases the car for (lets say) a period of two years for a monthly rent of $300.00; and at the end of two years the car is returned back to the bank and they may sell that car, or lease it to someone else, or do whatever they wish with it. Such transactions do not involve ‘riba’, and would thus be deemed lawful in the Sight of Shariah.

Q-2: Same is the case of House building loan. In both cases, the property is under the custody of bank.

The concept of taking a house or building loan or what is known as ‘mortgage’ from an interest-based financial institution or a conventional bank indeed involves the paying of interest, thus such a transaction would be absolutely unlawful in the Sight of Shariah Law.

When one takes out a loan or a mortgage from a conventional bank, one makes an agreement with the bank that the bank will legally ‘hold’ the property in its name until one pays them the full principal amount plus the accumulated interest in installments over a stipulated period of time; and when one has completed the agreed payments, the bank is legally obliged to hand over the property to the person. Because the taking of such loans or ‘mortgage’ involve the payment of ‘riba’ on the loan taken, such a transaction would be deemed absolutely unlawful in the Sight of Shariah Law.

Example: The original cost of the house is $10,000.00, and the person tells the bank that he intends to pay the bank loan in a period of 10 years, for which the bank determines that their interest for that amount of loan which would be paid back in that specific period of time of 10 years would be $8,000.00; and thus the monthly installment of the person for the $18,000.00 loan over 10 years would be say $150..00. When the person completes the payment of the total loan (principal plus interest) of $18,000.00, the bank is obliged to transfer the property in the name of that person.

Because this transaction involves the paying of ‘riba’ (interest), such interest-based loans and mortgages would be absolutely unlawful and prohibited in the Sight of Shariah Law.

Q-3: The other thing is the credit card

Dear and beloved brother in Islam, it is neither the concept of credit nor the concept of payment cards which are forbidden in Islam; but it the concept of ‘riba’ or interest which is associated with conventional credit cards which is absolutely prohibited by Allah and His Messenger (saws).

Some scholars are of the opinion that if one obtains a credit card and pays their bills on time before interest is accumulated or charged; because they themselves do not indulge in any transaction of ‘riba’, there is no harm and no sin. But other scholars have voiced their opinion that the very signing of the agreement whereby they agree and accept the condition that ‘if’ for any reason their payment is delayed, they will be liable for the accumulated interest charges, makes them an accomplice and party to what has clearly been declared as haram by Allah and His Messenger (saws); thus they are of the opinion that the believers should fear Allah and abstain from indulging in anything which involves ‘riba’.

Beloved brother in Islam, a better and purer option for one who sincerely wishes to abstain from doing anything which would involve ‘riba’ would be to obtain a ‘credit card’ or a ‘mortgage’ from one amongst the many good Shariah compliant Islamic Banks or Financial Institutions who strive to transact their business in accordance with the principles of Shariah.

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