As salamu alaykum. I have a two part question which would really help me.
Firstly, I want to purchase something on 0% finance which I understand to be halal, but most companies have late payment fees, is it permissible to agree to late payment fees? I intend to pay on time every month to avoid the late fees.
Secondly, are pcp loans or pcp financing allowed? (Personal contract purchase) these may also include late fees.
Late payment fees are unlawful as they fall within the prohibition of interest (riba). Stipulating such a term within a contract will render the contract unlawful and invalid. Therefore, it is unlawful to stipulate such a term within a contract and also unlawful to pay and receive these extra amounts.
There is however, a practical issue with this and that is that many contemporary contracts include a late payment term and avoiding all such contracts would be near impossible or at the very least place a person in a difficult situation.
Shari’ah provides discretion in these types of difficult situations under the framework of ‘public predicament’ (‘umum al-balwa). Contemporary scholars such as Mufti Taqi have permitted entering into a contract which stipulate late payment fees, provided that one is certain that they will make all payments on time and not incur any late payment charge.
For this reason, we would consider it permissible for a person to enter into such a contract provided the contract does not violate any other shar’i principle and the individual makes all payments on time.
As for PCP financing, this would depend on the terms of the contract. In order for the contract to be valid it must fulfil the relevant shar’i requirements. For instance, the contract must either be a sale contract or a lease contract. It cannot be a combination of both at the same time. Hence, if there is a lease arrangement in place whereby the lessee becomes the owner of the car upon paying the final lease payment this will be a lease and sale contract combined into one which is not permissible.
It would also not be permissible to make a sale contract contingent upon a lease contract. Hence, if the agreement is such that the lessee will lease the car for a certain number of years and then at the end of the lease contract they must purchase the car, then this would not be permissible as the sale contract is contingent upon the lease contract.
If however, at the end of the lease term, the lessee has an option to return the car back to the owner, or enter into a new lease whether with the same car or a new car, or purchase the car for a balloon payment, and these options are independent to the initial lease contract then there maybe scope for such an arrangement provided that the contract does not violate other shar’i requirement.
Another point which needs to be taken into consideration is that the lease must be a genuine lease fulfilling the shar’i requirements. This includes the lessor retaining ownership of the vehicle during the period of lease. If the lessee becomes the owner then in reality this will not be a lease contract.
The lessor should also take on liability for any damage which does not occur out of negligence on the part of the lessee.
There may be scope to overlook this condition, as making the lessee liable for damage is common practice and unavoidable, however, this would require further research.
These are some of relevant points in relation to PCP. It is not possible for us to issue an accurate ruling unless we have a specific contract to review.
Fiqh al-buyu’ 1:463
Fiqh al-buyu’ 1:523
Ifta Research Fellow
Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel