Entering contracts with Late payments

Jun 6, 2022 | Uncategorized

Question

As salam alaykum, my question is regarding late payments. I wish to purchase an item through an interest free loan, I will pay by instalments every month until the item is payed for. However most company’s have a late payment rule, is it permissible to buy such an item on interest free loan and enter into the contract agreeing to pay late fees, which may be classed as interest (riba). My intention is to pay on time every month to avoid any late fees or interest, but I’m worried if this is permissible (agreeing to pay interest) even though I don’t intend to pay any interest, would this item purchased through such a contract be halal for me to use and own. Thanks, May Allah reward you.


Answer

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). Therefore, contemporary scholars such as Mufti Taqi have permitted entering into a contract that has a late payment stipulation 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 that the contract does not violate any other shar’i principle, and provided the individual will make all payments on time.

Fiqh al-Buyu’ 1:463

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel