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Q & A --> Trade and Transactions --> The Ruling on Hire Purchase

Question : Is hire purchase [i.e. paying for a product through installments, and at a higher eventual price] permitted?

Fatwa in Brief: This is an underhand way of charging interest, [and act] which God has declared forbidden (haram).

Shaykh al-‘Uthaymin, Fatwa Al-Mu‘asira, pp 47-52

Response:

The increase in price in hire purchase is permitted, providing nothing in the contract explicitly stipulates that there is interest to be paid.

Commentary:

Paying a higher price in higher purchase is permitted according to Islamic law, and according to the four [Sunni Imams, on the condition that it does not resemble anything that is prohibited [i.e. riba and/or gambling].

In order for a hire purchase to be permitted it must fulfill certain important conditions. To begin, both parties must agree upon an appointed price and an appropriate method of payment, as well as a total eventual price. [If these conditions are met] The sale of hire purchase is permitted according to the verse:

“God permitteth trade [bi‘ya] and forbiddeth usury (riba). (Q. 2:275)

In this instance, the word “trade” (biy‘a) includes both the condition [of the sale] and the time [in which something must be paid for]. The same meaning is found in another verse:

“Except it be a trade among by mutual consent”. (Q. 4:29)

While the verse:

“O ye who believe! When you contract a debt for a fixed term, record it in writing”. (Q. 2:282)

[i]s proof that hire purchase is permitted in Islam. Similarly, in a hadith attributed to ‘Abd Allah ibn ‘Amr, the Messenger of God (upon him be peace) told ‘Abd Allah to prepare an army, until no camel was left unused. As part of the process, the Prophet ordered him to take all camels from the Muslims’ sources of charity; and, for every camel that was taken, he [the Prophet] promised that it would be replaced by two [camels].

Some scholars believe that it is never permitted to raise a price depending on the passing of time [it takes to repay this]. In their view, any increase is to be considered [as the charging of] riba [interest], which is forbidden. Abu Bakr al-Jisaas al-Hanafi and others among the pious predecessors (al-Salaf) hold this opinion. Yet, the best opinion is that of the majority: that [under certain conditions], it is permitted.

And God knows best.

In its sixth conference at Jeddah in Saudi Arabia, The Islamic Council of Jurists ruled on the subject of hire purchase as follows: “after an agreed upon period of time has elapsed, it is permitted to raise the price that must be paid so that it becomes higher than the current price. It is also permitted to mention the cash price and the price of hire purchase”.

And God knows best.

Dr. Anas Abu Shadi