Authored by Dr. Muhammad Zia-ur-Rahman Azmi (رحمه الله)
Question:
What is Islam’s view on installment sales, where the price for deferred payment is higher than the cash price?Answer:
According to the consensus of scholars, installment sales are permissible. A person may purchase something they need on credit, with the option to pay in installments over time or in a single lump sum later. There is no objection to this practice, and it has been confirmed as lawful by many scholars.Key Points on Installment Sales:
- Permissibility of Increased Price in Installments:
- It is permissible for the deferred price in installment sales to be higher than the cash price.
- This permissibility aligns with the principles of Islamic law, as it benefits both parties:
- The seller gains profit by charging a higher price for the deferred payment.
- The buyer benefits from the convenience of paying in installments.
- Prohibited Practices in Installment Sales:
- If the sale has already been finalized at a specific cash price, and the buyer later requests additional time for payment in exchange for increasing the price, this constitutes riba (usury) and is prohibited.
- Example:
- A seller agrees to sell a car for 10,000 in cash.
- Later, the buyer cannot pay and requests to defer payment for a higher price (e.g., 12,000).
- This increase due to the deferment of payment is riba and thus haram (prohibited).
- Differentiating Between Legitimate Installment Sales and Riba:
- In a valid installment sale, the higher price is agreed upon at the time of the contract, not as an adjustment made later due to deferment.
- The deferred price reflects the agreement from the outset, ensuring transparency and compliance with Islamic principles.
Conclusion:
- Permissible Installment Sales: Installment sales with a higher deferred price agreed upon at the time of the contract are lawful.
- Prohibited Adjustment for Deferment: Increasing the price after the contract due to delayed payment constitutes riba and is strictly prohibited in Islam.