Praise be to Allaah.
In this transaction it is essential for the bank to take full
possession of the car in real terms, by buying it and taking possession of
it; the bank should not merely be an intermediary between you and the owner
of the car. Any failure to meet this condition means one of two things:
That the bank is selling
something that it does not own, which is haraam.
That the bank is not really
selling it, rather it is giving a loan with interest; it pays the company
one hundred – for example – on your behalf, on condition that it will get
120 back from you in instalments. This is obviously riba.
The fact that the bank has stipulated a penalty to be paid in
the event of a delay in paying instalments is the essence of riba. It is not
permissible for anyone to take part in such a transaction, even if he is
certain that he is able to make the payments, because that is lending
approval to a riba-based contract, which is haraam. The Islamic Fiqh Council
has issued a statement that it is haraam to impose penalties for delays in
It says in the statement of the Islamic Fiqh Council no. 133
(14/7), issued during its fourteenth conference in Doha:
If the purchaser delays a payment and does not pay at the
specified time, it is not permissible to make him pay any amount in addition
to the debt on the basis of a clause agreed upon in advance, or without any
such clause, because that is riba and is haraam. End quote.
Based on this, if the bank imposes a penalty for late
payment, it is not permissible for you to buy the car from them. The same
applies if it does not take possession of the car and is only acting as an
intermediary to pay the money on your behalf.
And Allaah knows best.