Buying on Credit — Instalments, BNPL, Cards and Financing

1. 1Two doors that look alikeA sale on a deferred price, or a loan with an increase
2. 2The instalment sale done rightOne price, no two sales in one, own it first
3. 3Buy now, pay laterWho pays whom, the late-fee clause, a missed payment
4. 4Credit cards, charge cards and card-iThe grace period and the fence
5. 5Cash from the bankPersonal financing, tawarruq and ʿīnah
6. 6Car and homeMurābaḥah, ijārah, diminishing mushārakah
7. 7Late-payment charges, from both sidesCompensation, charity clauses, respite
8. 8Insurance you are required to holdMotor, medical, takāful
9. 9Already in an interest loanRepentance, getting out, purifying
10. 10Borrowing and repaying wellWriting, intending, repaying generously
11. 11When you cannot payRespite, zakat for debtors, the weight of debt
12. 12The one-page checklistSix questions before you sign

The word “instalment” is printed over two different doors. Behind the first is a sale on a deferred price: someone who owns a thing sells it to you, the two of you fix one price, and you pay it later, in one sum or in parts. Behind the second is a loan with an increase: someone hands you money, or pays a shop on your behalf, and you owe back more money than was paid, often more the longer you take. They look the same from outside, and in the Sharīʿah they are opposites. The first is trade. The second is ribā.

The people who first heard the prohibition made exactly the objection a modern shopper makes: what is the difference? The Qurʾān records the objection and answers it without argument:

The line is drawn by Allah, not by the size of the monthly figure: a sale can cost you more than a loan and still be lawful, and a loan can cost you less than a sale and still be ribā.

Buying on credit is not blameworthy

Credit is not suspect in itself. The Prophet ﷺ bought on credit, and he left his armour as security for the debt:

The same report is narrated again in the same collection: “Allah's Messenger (ﷺ) bought food grains from a Jew on credit and mortgaged his armor to him” (Sahih al-Bukhari 2096). A deferred price is lawful, and so is security for a debt (rahn).

Why the payer must care

Ribā is not only the bank's sin. The Prophet ﷺ named both sides:

“The one who gives it” is the borrower, the cardholder who pays interest, the customer who pays the increase. (A longer wording in Ṣaḥīḥ Muslim, quoted in the site's answer qa-870, also names the scribe and the witnesses. Its Muslim number is not printed here until the site's numbering is cleared.)

Telling the doors apart

The last row is the one most often forgotten. The site's Islamic Finance page puts it in one sentence: “Substance, not vocabulary, decides the ruling.”

Most instalment buying a Muslim does is the first door: a shop, a dealer or a bank sells you something on a deferred price. The site's answer on instalment pricing (qa-650) gives the ruling and its limits in one paragraph: “the majority of scholars permit charging more for a deferred (installment) sale than for immediate cash, because this is a genuine sale of goods, not a loan with interest.” It then names three conditions. Each one has its own evidence.

1. One price, fixed at the contract

“The key condition is that a single price is agreed and fixed in the contract; once settled it cannot increase if the buyer is late, since adding to a fixed debt for delay is riba” (qa-650). The price list may offer several options, such as cash, twelve months or twenty-four months, each with its own figure. That is permissible as a menu. What is forbidden is signing while the menu is still open, so that the price you owe depends on when you end up paying.

At-Tirmidhī records how some of the people of knowledge explained it, and the explanation fits the instalment question exactly: two sales in one “is when one says: ‘I will sell you this garment for ten in cash, and twenty on credit.’ He does not distinguish between either of the two sales. But when he distinguishes it as being one of them, then there is no harm” (Jāmiʿ at-Tirmidhī 1231). The same prohibition comes through an-Nasāʾī: “The Messenger of Allah forbade two transactions in one” (Sunan an-Nasāʾī 4632, graded sahih). Abū Dāwūd's wording says what happens to such a deal:

At-Tirmidhī also records a second explanation, from ash-Shāfiʿī, so the phrase has more than one reading. For instalments the rule is the same on either: one price in the signed contract, and nothing in it that changes that price later.

2. No loan made conditional on a sale

So do not accept “we will lend you the cash only if you also buy this from us,” or any bundle that ties a loan to a sale.

3. The seller must own the goods first

The same hadith ends with “a profit on that which you do not possess.” Ḥakīm ibn Ḥizām asked about exactly the situation a finance company is in today:

Ibn ʿAbbās reported the Prophet's ﷺ prohibition on reselling food before receiving it and added his own understanding: “I consider that all types of sellings should be done similarly” (Sahih al-Bukhari 2135). A shop selling its own stock meets this easily. A company that never owns the phone, and simply pays the shop and collects from you, is not selling you anything: it is lending, and the question becomes whether you repay more than was lent.

For a young Muslim in Kuala Lumpur or Dubai, the first credit contract is usually a checkout button that splits the price into three or four parts. The site's principle on it is one sentence on the Riba and Halal Earning page: “Deferred payment at the same price is permissible; a fee or penalty that is really interest for paying late is riba.”

Step one: who is your creditor?

If you will owe the shop, selling its own goods for a fixed price paid in parts, you are in Chapter 2. If you will owe a third party that pays the shop now and collects from you later, that party never owned the goods: it paid on your behalf, and you now owe it money. Read by the rules of Chapter 2 (this book's reading, not a ruling the site states), that relationship is a loan: you owe back what was paid for you, and any increase you pay because of the deferral or because of a delay is the problem.

Step two: do you pay exactly the price?

If you repay precisely the checkout price, split into parts, and there is no charge for the split, then no increase passes from you to the creditor. That is what the site means by “deferred payment at the same price.” If the plan adds a charge to you that grows with the number of months, then you are paying more money later in exchange for money paid now. That is the “money-for-more-money” structure qa-650 forbids, whatever the charge is called.

Step three: who pays the provider?

When the customer pays nothing extra, the provider is usually paid by the merchant, as a fee or a discount on the price it passes on. That is inference, from general knowledge of how these services work. This book found no ruling on the site about that merchant fee. It is part of the merchant's contract, not yours, and this book does not settle it; put it to a scholar if it troubles you.

Step four: read the late-fee clause before you press the button

Almost every BNPL agreement keeps its real cost in the late-fee clause (inference). Find it and answer three questions. Is the fee a flat amount, or does it grow with each week or month of delay? Is it capped? Who keeps it? The site's answer to a creditor asking about late penalties (qa-998) states the principle plainly: adding money to a debt because of delay “is exactly the ribā of the Jāhiliyyah (‘either you pay or you increase it’), and it makes no difference whether the increase is called a penalty, a late fee, or compensation for loss.” Neither that answer nor the BNPL sentence draws a line between a flat late fee and a growing one. A growing fee is interest by another name. A flat fee kept by the creditor is still money added to a debt because of delay.

May you sign a contract containing such a clause if you are certain never to trigger it? That is the credit-card question, and Chapter 4 gives the site's two positions. Until you have settled it with someone qualified, use BNPL only when the money for every instalment is already in your account.

Step five: if you have already missed a payment

A conventional credit card is two things in one plastic. It is a way of paying: the bank pays the shop, and you settle with the bank when the statement comes. It is also a line of credit that charges interest on whatever you do not settle by the due date.

The site's two positions, as it gives them

The site's answer (qa-336) calls this “a genuinely debated issue because the risk hinges on how the card is used, not the card itself,” and sets out the positions:

• Permitted with full payment. “If a cardholder pays the full balance every month before any interest accrues, no interest is ever actually paid or received — some scholars therefore permit this use, viewing the card simply as a convenient payment and short-term deferred-payment tool.”
• Cautious. “Other scholars are more cautious, pointing out that most credit card agreements are, at their core, interest-bearing loan contracts (even if the interest goes unused), and that signing such a contract itself may be problematic regardless of whether the interest clause is ever triggered.”

The answer also records “a middle-ground approach” that “permits use only when full, on-time repayment is essentially guaranteed, treating any late-payment interest as an unacceptable risk to be avoided at all costs.” And it notes that where cards “with no interest mechanism at all, sometimes with a flat annual fee instead” are available, “these avoid the debate entirely and are generally preferred.” This book does not choose between them. Both agree on one point: interest must never actually be paid.

The interest clause as a fence

If you hold a conventional card, treat the interest clause as a fence you never cross.

Charge cards and card-i

A charge card that must be settled in full every month, with no interest mechanism at all, is the kind of card qa-336 calls “generally preferred.” Cards sold by Islamic banks, often labelled “card-i”, are built on various contracts, and the label alone tells you nothing (inference: general knowledge of how these cards are sold in Malaysia and the Gulf; the site has not reviewed any card). Ask the bank three things in writing. What contract is the card built on? If a commodity sale, it is tawarruq (Chapter 5). What do I pay if I carry a balance, and does it grow with the amount and the time outstanding? If it does, it must be explained as something other than interest: “Substance, not vocabulary, decides the ruling.” And where does the late charge go (Chapter 7)?

The hardest case is when you want cash, not a thing. A sale gives goods, not money, so an Islamic product that puts cash in your account has to pass through a sale, usually of a commodity you buy on credit and then sell for cash. The name of that arrangement is tawarruq. Personal financing from Islamic banks is commonly built this way, often under the name commodity murābaḥah (inference: general knowledge of the products). Whether it is lawful depends on what actually happens to the commodity.

Classical tawarruq, and the difference over it

The site's answer (qa-1002) defines the classical form: “a person genuinely buys a commodity on deferred credit at a higher price, takes possession of it, and then sells it in the market to an unrelated third party for cash because he needs money.” It then sets out the difference of opinion:

• “The majority, including Ibn Bāz, Ibn ʿUthaymīn and the Permanent Committee, permitted this: each leg is a real sale.”
• “ʿUmar ibn ʿAbd al-ʿAzīz is reported to have called it ‘the little sister of ribā,’ and Ibn Taymiyyah and Ibn al-Qayyim disliked or prohibited it, seeing it as a contrivance to arrive at cash-now-for-more-cash-later.”

Organised tawarruq

The bank product is usually something else. In the same answer's words, organised tawarruq (tawarruq munaẓẓam) is where “the bank arranges both the purchase and the onward sale as your agent, the commodity never really moves, and the customer only ever sees cash in and a larger debt out.” The site reports that this “was ruled impermissible by the OIC Islamic Fiqh Academy in 2009 and by many contemporary scholars, because it is a legal device closely resembling bayʿ al-ʿīnah.” Its conclusion: “real tawarruq with genuine possession and a genuine third-party sale is a recognised difference of opinion and permitted by the majority; the automated bank product is best avoided.”

ʿĪnah: buying it back

ʿĪnah is the plainest version of the device. You buy something from a seller on credit at a higher price and sell it straight back to the same seller for a lower cash price. The goods go out and come back. What remains is cash now against more cash later. The warning is severe:

Possession before resale

What separates a real sale from paperwork is possession. The Prophet ﷺ said:

Ibn ʿAbbās explained why, and his answer reads like a description of a commodity product in which nothing moves. Asked how selling food before receiving it went wrong, he said: “It will be just like selling money for money, as the foodstuff has not been handed over to the first purchaser who is the present seller” (Sahih al-Bukhari 2132).

Questions for the bank officer

“A commodity I never see, sold by the bank for me, in one signature” is what qa-1002 describes as organised tawarruq. A buy-back by the original seller is ʿīnah. qa-1002 offers a better door: “one who needs cash should first seek a qarḍ ḥasan or a straightforward murābaḥa for the thing he actually wants.” If the cash is for a car, finance the car.

Islamic banks finance cars and homes through three contracts. This chapter shows how to test each as it reaches you on a form. The contracts themselves are explained at length in the site's companion book, Islamic Finance — Contracts, Banking & Modern Money. The rule for all three is the one from the site's Islamic Finance page: “Substance, not vocabulary, decides the ruling.”

Murābaḥah: the bank buys, then sells to you

In murābaḥah, “the bank buys an asset (a car, equipment, a house), takes real ownership, then sells it to you at a disclosed markup, payable in instalments.” The site names the two conditions that carry the ruling: “the seller must actually own and bear the risk of the asset before selling it, and the sale must be a genuine second transaction, not paperwork over a loan.” Where the bank “never takes possession or risk, and the customer effectively receives money and owes more money — it replicates the substance of an interest loan under an Arabic name.”

Ijārah ending in ownership: lease, then transfer

In ijārah the financier owns the asset and rents it to you. The site's condition: “The owner must remain the real owner — bearing ownership costs and the risk of destruction — for the rent to be halal rent.” For the lease-to-own form, “scholars require that the lease and the final transfer be genuinely structured and priced as what they claim to be, and that the lessor carry an owner's obligations meanwhile.” Ask: if the car is written off in the first month, whose loss is it?

Diminishing mushārakah: partners, then you buy out

For homes the site describes diminishing mushārakah as a partnership in which “one partner progressively buys out the other's share,” calling it “the strongest of the modern home-purchase structures.” The site's home-financing answer (qa-219) describes it as “a declining-balance partnership where the bank and client jointly own the property and the client gradually buys out the bank's share while paying rent on the portion still owned by the bank.” The partnership is real only if loss follows ownership. The site's partnership section adds a further condition: loss is borne “strictly in proportion to capital.”

The honest paragraph on home financing

The site's Islamic Finance page says home financing “deserves the most honest paragraph on the page”, and this book follows it. The agreed ground: a conventional mortgage “is a loan at interest,” and a “genuine murābaḥah, diminishing mushārakah, or ijārah structure — where the financier truly owns, truly bears risk, and truly sells or leases — is halal, even though the total paid exceeds the cash price.” The genuine debate is in two places. First, whether the products on offer are genuine: some “in which the bank never carries an owner's risk and the ‘rent’ is simply an interest benchmark plus paperwork, have been criticised by committed scholars as riba re-labelled.” Second, necessity: a minority of contemporary scholars have permitted a conventional mortgage for a first, owner-occupied home out of need, and “the majority of scholars reject this extension” (see also qa-337).

The late clause is where a lawful contract most easily slides back into ribā. Read it from both sides.

The debtor's side: delay is not neutral

A Muslim who can pay and does not is not merely inconvenient. He is doing wrong:

The same words come in a second chain: “Procrastination (delay) in repaying debts by a wealthy person is injustice” (Sahih al-Bukhari 2400). Lateness by someone who has the money is a sin of its own, whatever the contract charges for it.

The creditor's side: nothing extra into his own pocket

The site's answer to a creditor whose solvent customer keeps delaying (qa-998) is the most exact statement the site has on late clauses. The creditor “may demand payment, pursue him through the courts, and refuse him credit in future.” But he “may not … add money to the debt because of the delay.” Then it reports where the contemporary bodies stand:

• “Contemporary fiqh bodies agree that nothing extra may enter the creditor's own pocket.”
• “Some standards (such as AAOIFI's standard on the procrastinating debtor) permit a clause obliging a wilful defaulter to donate a stated amount to charity as a deterrent.”
• “Other scholars, and the OIC Islamic Fiqh Academy in its rulings on penalty clauses, hold that no monetary charge may attach to a debt at all, since that is ribā itself.”

Reading your own late clause

Islamic financing contracts in Malaysia and the Gulf commonly carry a late-payment clause, sometimes split into a part the financier keeps as “compensation” (often called taʿwīḍ) and a part paid to charity as a “penalty” (often called gharāmah). That description is inference, from general knowledge of the contracts. qa-998 does not use these terms, and the site has not reviewed any contract. Measure your clause against what the site does say:

The insolvent are owed respite

For the debtor who cannot pay, the command is different, and qa-998 ends with it: “If the debtor is in a difficulty, grant him time Till it is easy for him to repay” (Qur’an 2:280). The Prophet ﷺ told of a merchant who lent to people and who, “whenever his debtor was in straitened circumstances, he would say to his employees, ‘Forgive him so that Allah may forgive us.’ So, Allah forgave him” (Sahih al-Bukhari 2078).

Credit brings insurance with it: motor cover for the road tax, medical cover for the job or the visa, cover on the financed car or house. People who were careful about the financing often sign the insurance without reading it.

Why commercial insurance is a problem

The site's answer (qa-648) reports that “the majority of contemporary scholars and fiqh councils rule that conventional commercial insurance is impermissible because it combines three prohibited elements”: excessive uncertainty (gharar), gambling (maysir), and ribā, “since insurers invest premiums in interest.” The first of these, the sale of an uncertain outcome, has its evidence in the Prophet's ﷺ prohibitions on sales whose object neither side could know:

Abū Hurayrah reports the same kind of prohibition on two sales settled by a touch or a throw rather than by knowledge: “Allah's Messenger (ﷺ) forbade selling by Mulamasa and Munabadha” (Sahih al-Bukhari 2146). The general prohibition of gharar sales is also reported in Ṣaḥīḥ Muslim. It is not cited here by number, because the site's Muslim numbering for it has not yet been cleared against its corpus.

Takāful, and its limits

The site's Islamic Finance page explains takāful: “participants donate into a common pool from which any stricken member is helped, with the operator paid a fee to manage it and the pool invested in halal assets.” Because it is mutual donation (tabarruʿ), “the gharar that spoils a sale does not spoil it — the Sharīʿah tolerates uncertainty in charity that it forbids in commerce.” And a warning: “a takāful certificate is only as good as its substance — a fund that mirrors a conventional insurer in everything but vocabulary earns the same ruling.”

When the law requires it

The site gives a clear allowance for cover the law compels: “where the law compels insurance (motor liability, employer schemes) or a genuine need admits no alternative, scholars permit taking the mandated minimum while the prohibition remains on what is freely chosen.”

A conventional car loan, a card carrying a balance for years, a personal loan taken in a crisis: this is the commonest real situation. This chapter separates what the evidence says clearly from what this book found no ruling on.

The verses addressed to you

These verses speak first to those owed interest: give it up, and “ye shall have your capital sums.” For the payer the lesson is the same: the principal is a real debt, and the interest on top is what must go. And the door is open: “Those who after receiving direction from their Lord, desist, shall be pardoned for the past” (Qur’an 2:275).

Repentance: what it asks of you now

Repentance is to stop, regret, resolve, and put right what can be put right. For someone paying interest, that means:

What the site has not ruled on

This book found no answer on the site on whether a borrower who repents must keep paying the contracted interest, or on what to do if the lender will not accept principal alone, and it does not invent one. It can say three things. The site's answers on necessity describe some contemporary scholars permitting an interest loan as a last resort, for education (qa-335) or a first home (qa-337). Neither answer presents it as agreed: qa-335 calls it “not a unanimous position” and qa-337 “far from a unanimous position.” The payer of ribā is named in the curse (Sahih al-Bukhari 5347). And getting out must not wrong other people.

Getting out without harming others

A plan to escape interest by simply stopping payment can land the debt on a guarantor, a co-signer, or a parent who pledged a house. That turns one wrong into two:

Get out in a way that leaves nobody else carrying your debt.

Purifying what came in

The interest you paid is gone. What there may be to purify is interest you received, on savings or a fixed deposit. The site's answer (qa-870) gives the position of “the great majority of contemporary scholars”: “calculate the interest and dispose of it in avenues of general benefit — the poor, the indebted, medical and relief needs — without intending reward for it, as this is ridding yourself of unlawful wealth rather than giving ṣadaqah.” It does not count as zakat or as charity. The reason is in a sound hadith:

A convert is in a different position. Interest earned before Islam is covered by the site's answer qa-277: “You can keep it.” The same verse (2:275) is behind it.

A lawful, interest-free loan is an act of kindness, and the Sunnah says how to take and return it.

Write it down

The site's Debt page notes a respectful difference over its force: “The majority (jumhūr) hold the command to be one of guidance and strong recommendation,” while “a minority among the early scholars … took the command at its apparent obligation.” It adds that both sides agree “documentation is a protection Islam urges upon believers.” Write down even a loan from family: the amount, the date, and when it will be repaid.

Borrow meaning to repay

Seek refuge from debt

The Prophet ﷺ used to say in his prayer, “O Allah, I seek refuge with you from all sins, and from being in debt.” When asked why he so often sought refuge from debt, he replied: “If a person is in debt, he tells lies when he speaks, and breaks his promises when he promises” (Sahih al-Bukhari 2397).

Repay with more, as a gift and never as a condition

The Prophet ﷺ owed a man a camel of a certain age. None of that age could be found, only an older one, and he said to give it to him, then: “The best amongst you is the one who pays the rights of others generously” (Sahih al-Bukhari 2305). When a creditor demanded his due rudely, he ordered the older camel bought and given, “for the best among you are those who repay their debts handsomely” (Sahih al-Bukhari 2390).

The site's answer (qa-1000) draws the line that keeps this from becoming ribā. If the extra was “stipulated, agreed, or even understood as an expectation at the time of the loan, it is ribā by consensus.” If “nothing was conditioned and the borrower, purely of his own accord at the time of repayment, gives back more or better, that is permissible and praiseworthy.” It adds a correction about the well-known maxim “every loan that brings a benefit is ribā”: “it is not authentically established as a statement of the Prophet ﷺ — it is reported from the Companion Fuḍālah ibn ʿUbayd, and Ibn Ḥajar noted that the chains raising it to the Prophet ﷺ are all weak — though its meaning is sound and the scholars agree on it as a principle.” And a precaution: gifts from a debtor while the debt is still outstanding “should be declined, or counted against the debt.”

Be easy when you are the lender

“May Allah's mercy be on him who is lenient in his buying, selling, and in demanding back his money” (Sahih al-Bukhari 2076).

When the salary stops or the illness comes, the Sharīʿah gives commands to the creditor and the community, and warnings to the debtor meant to keep him honest, not hopeless.

Respite, and remission

A Muslim creditor is bound by this verse; a conventional lender is not, though many have hardship arrangements (inference). Either way, speak early: tell the creditor before the first missed payment and ask for time. The Prophet ﷺ spoke of a man forgiven because he “used to give time to the rich to repay his debt and (used to) deduct part of the debt of the poor” (Sahih al-Bukhari 2391). You may ask a creditor to be that man.

Debtors are owed zakat

Yusuf Ali's rendering runs two of the eight categories together: “those in bondage and in debt.” The Arabic names them separately, and the category for debtors is al-ghārimīn (ٱلْغَـٰرِمِينَ). A Muslim who cannot pay a lawful debt is one of the people zakat is for. This book found nothing on the site about how the state zakat bodies in Malaysia or the charities in the Gulf assess such claims. Ask them directly.

The debt that outlives you

Debt is not written off at death. When a dead man was brought for the funeral prayer, the Prophet ﷺ asked whether he was in debt. On being told he owed three dinars and had left nothing, “He (refused to pray and) said, ‘Then pray for your (dead) companion.’ Abu Qatada said, ‘O Allah's Messenger (ﷺ)! Lead his funeral prayer, and I will pay his debt.’ So, he led the prayer” (Sahih al-Bukhari 2289). Later, when the Muslims had wealth, he took the burden on: “if a Muslim dies while in debt, I am responsible for the repayment of his debt” (Sahih al-Bukhari 2298).

Even martyrdom does not cancel what is owed to people. A man asked whether being killed in Allah's cause would wipe out his sins:

An-Nasāʾī's report is cited instead of the shorter wording in Ṣaḥīḥ Muslim, and the narration of Qabīṣah on when asking is permitted is left out, until the site's Muslim numbering for them is cleared.

A plan for the debtor who cannot pay

Two verses sit behind every question below. One gives the rule for taking another person's money:

The other makes whatever you sign binding on you:

Because a contract binds you once you sign it, the questions have to be asked before you sign:

If any answer is “I don't know,” do not sign yet. An honest seller loses nothing by waiting a day.