Buying Car with X% APR

[mags1234]

It is haram to buy a car with interest from dealer. I been different dealership asking for 0 apr and they said they don’t offer it. If someone can explain me what can I do to buy a car so that it will be halal way and I live is USA. I don’t have that huge cash to buy that off right.

 

[williambradley]

@mags1234 My understanding is if you cannot find a 0% apr, your only options are buying in cash or leasing a car until you save enough to buy in cash.

 

[sbmor777]

@mags1234 Yes interest-based loans involve riba and are haram.

As far as I know, the only halal ways to get a car in the US are:

1. Save up and pay for it outright. This might be more realistic for pre-owned than new.
2. Sometimes there are promotional deals with 0% interest for a certain number of months/years and if you pay it off within that time then you avoid interest. But that's only if you pay it off within the 0% APR timeframe.

Or

1. Look into leasing instead of buying. Many leasing programs have a "lease-to-own" feature where money you pay during the lease goes towards the vehicle and then at the end of the lease you have the option to buy the car for its "remaining value" obviously reduced from the original price.

Leasing is a permissible method of financing: https://www.amjaonline.org/fatwa/en/85828/leasing-a-car-from-dealer

 

[vijayaraju]

@mags1234 Buying a car with an APR is not permissible because it involves RIBA. If leasing and 0%APR options are not available for you, you can try to negotiate with the dealership for them to buy the interest for you into the principal price of the car. For example, if a car costs 20k before APR and 22k after APR, you negotiate with the dealer to make the principal price of the car 22k with 0% APR. The only downside is that in this case if you make advanced payments (for example, if one day you deposit a big lump sum payment), it will not reduce your balance because the interest is 0% and will not make a difference whether you pay it at the agreed timeframe or earlier. But most people don't find this a big deal.

 

[annm]

@mags1234 I’ve done a lot of research(but I’m not a scholar of any kind) on this cause I’m car shopping myself. Aside from buying in cash it seems like there are a few options.

1. Find a car on a 0% apr deal. Just Google “0% apr car deals” and you’ll get a few lists
2. Lease the car, I’m not going to say this is completely halal cause it seems late fees are also a form of riba. You would have to do research regarding late fees & see if you’re comfortable with signing a contract including them. but regarding the lease payment itself, this is the equivalent of renting a home. Even if the lease payment includes “money factor” or the word “interest rate”, it does not matter to you how they come up with the rental payment amount. A big misconception I’ve seen while looking into this is that Muslims seem to think anything with the word “interest” or a “%” is haram. The word “interest” is not haram itself, you have to look at the underlying concept of the transaction. Ownership, is it a trade of goods or a trade of money, etc. The transaction is an owner of the car renting it to you at an agreed upon price. You know how much you will end up paying(aside from late fees) at the end of the contract, & for how long. There is no lending of money or receiving more than what was lent. This is a rental of goods, not a trade of money.
3. In-house financing from a dealership. This one is tricky but if done properly can be halal(I think) even if the contract includes the word “interest rate” & even if it’s not 0%. The dealership MUST be the owner of the vehicle before the transaction, & there CAN NOT be a third party financier involved. As in there can not be a financial institution that is making a payment to the dealer on your behalf. So the transaction needs to be directly with the owner/seller of the vehicle. So say there’s a $20k car, the dealership wants 5% interest at 5 years let’s say that brings the end total to ~$22,645. So they sell the car to you, the contract will say “you will pay $22,645 over 60 months for this item”, even though there is a 5% interest on the contract, at the face of this transaction someone sold you a good for an agreed upon price that does not go up(as long as you don’t end up paying a penny over the total shown on the contract). This is tricky cause again you have to confirm it’s the dealer selling you the car directly and you’re paying them back directly, & the transaction would need to be 1 single transaction of them selling you a product(not them lending you money to buy their product with), & risky cause also having 5% apr on the contract does add the risk of you paying more than the total shown on the contract(say you ask for deferment for a few months for whatever reason). It would be safer & give you more peace of mind Islamically to ask them to capitalize that interest & make that the sale price, & put 0% apr on the contract. In the example above:

instead of $20k sale price @ 5% interest = $22,645 over 5 years,

Ask them to sell it to you for $22,645 sale price @ 0% interest over 5 years

Disclaimer: I am not an Islamic scholar, & I do not have a degree in financing. I am not saying any of these options are completely halal. I am just trying to make you aware of the options that I’ve come across myself & my understanding of them, but you should do deeper research into these options yourself & maybe even reach out to a scholar before finalizing anything

 

[mags1234]

@annm Wow that’s really helpful. I really appreciate you took that time to explain everything. Jaja kallah hu khairan.