Question Summary:
Shariah Compliant Solutions to fund your asset purchase

Question Detail:

I am a graduate student in USA and recently I got a job. I am planning to buy a car now which I feel is a necessity now. I am really confused regarding the limited options I have.
1- Buying a second hand car which is cheap and not reliable. As a student I dont have enough money to buy a second hand car in good condition which forces me to go for a cheaper options. However I dont want to go with this option as I dont want to end up paying in maintenance of the car.
 
2- The 0% Apr deals with certain dealers. I am not sure if it is Halal or not as the dealers increase the base value of the car and apply 0% Apr on the vehicle.
 
Can you please provide me a solution in this matter ? 

Answer :

In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh
We commend your enthusiasm in searching for Shariah Compliant Solutions to fund your asset purchase. Adherence to Shariah invokes the Mercy and Rahmat of Allah (Subhanahu Wa Ta’ala). May Allah grant you Barakah. Aameen.
 
You state that you wish to purchase a vehicle. It is impermissible for one to purchase a vehicle on the basis of hire purchase schemes/interest bearing loans. You state that certain dealers offer 0% APR deals. There are various considerations when determining the Shariah Compliancy of any financial product. We cannot comment on the Shariah Compliancy of the deal unless we review the underlying terms and conditions of the contract.
We advise you to consider the following alternatives:
 
1.  You may adopt Shariah Compliant Vehicle Finance Solutions via bank/private funding. You may use the following common Shariah Solutions:
 
1.1 “Ijara Wa Iqtina” (Rent to Buy) facility where a prospective client may hire a vehicle/car over a period of time and thereafter receive an option to purchase the car once of for a minimal sum of money.
 
1.2. Murabaha “Cost plus Financing” facility where the client purchases equity from a third party while receiving the necessary finance from the Islamic Bank. This facility entails a complex structure of seven different stages such as purchase requisition, MMFA “Master Murabaha Facility Agreement”, Agency (Specific/Global) Agreement, etc.
 
1.3. Bay al-Ta’jeel “Sale on deferred payment” facility where the bank sells the equity to the client on the basis of periodic instalments for a fixed tenure.
 
1.4. Ijarah “Renting/Hiring” facility where the Islamic Bank hires out the equity (car) to the client without the option of eventual purchase. The client merely hires the equity from the bank.
 
We advise you to obtain the contractual agreements of the product you wish to purchase and submit it to us for our analysis and review.
 
2. You may contact your local car dealerships and explain the importance of Shariah Compliancy in funding your vehicle purchase. Explain to them the financial benefits in offering a Shariah Solution to the Muslim Public. They do not require to change any of their financial risk lending/due diligence procedures in offering such a solution. Furthermore the risk profile of the bank in any transaction will be protected and not violated. You are welcome to contact us in facilitating correspondence with interested parties to devise and create Shariah Compliant Financial Solutions.
 
And Allah Ta’āla Knows Best
 
Ismail Desai,
Darul Iftaa
 
Checked and Approved,
Mufti Ebrahim Desai.