Car Finance...buying a car

Revert · #1 (**permalink**) 03-01-2008, 05:20 PM

Bismillah

Asalaamu Alaykum

Is car finance halal? Do they charge interest if you lease a car or buy one on finance? We desperately need a reliable car to inshaAllah drive further out and get a higer paid job. I've never owned a car before (i don't even know how to drive) so any help is appreciated.

So what are my options?

Oh Islamica Gurus! I bow to your infinite auto knowledge!!!!

Help a brother out!

sixpakistan · #2 (**permalink**) 03-01-2008, 05:32 PM

financing involves interest & is not halal

you can

1. lease

2. buy a beater cash

Revert · #3 (**permalink**) 03-01-2008, 05:39 PM

Quote:

Originally Posted by sixpakistan

financing involves interest & is not halal

you can

1. lease

2. buy a beater cash

Jazaks bro

So how does leasing work? Feel free to link me if you don't feel like typing a long explanation.

Buying a beater is not an option as i need a reliable car.

YOUSUFofSD · #4 (**permalink**) 03-01-2008, 05:47 PM

getting a 5-7 year old Honda civic or accord is probably the most cost efficient and reliable way out of your situation. even a couple years old Toyota corolla is a good option. As long as you have a good mechanic shop take thorough look at the car, they can be as reliable as new cars.

i don't know much about leasing and how halal it is, so i cant help you there bro.

Revert · #5 (**permalink**) 03-01-2008, 05:50 PM

Quote:

Originally Posted by YOUSUFofSD

getting a 5-7 year old Honda civic or accord is probably the most cost efficient and reliable way out of your situation. even a couple years old Toyota corolla is a good option. As long as you have a good mechanic shop take thorough look at the car, they can be as reliable as new cars.

i don't know much about leasing and how halal it is, so i cant help you there bro.

The thing is , that my wife and i are in low paying jobs, we are pretty desperate for a car, we don't have a huge amount saved so paying a one off amount won't work either.

sixpakistan · #6 (**permalink**) 03-01-2008, 05:53 PM

Quote:

Originally Posted by Revert

Jazaks bro

So how does leasing work? Feel free to link me if you don't feel like typing a long explanation.

Buying a beater is not an option as i need a reliable car.

the way leasing works is that basically, you assume ownership of the car for a fixed amount of time and pay for the depreciation on the car during that amount of time.

there are four important figures in a lease:

1. the manufacturer's suggested retail price of the vehicle & its options + destination charge

2. the negotiated price between you & the dealership

3. the "residual," or what percentage of the original MSRP the car is pre-determined to be worth at the end of the lease (this is affected by make of car, lease term, how many miles you get on the lease, etc)

4. the "money factor" - this is a percentage fee the dealer/leasing company charges on top of everything else. it's roughly the equivalent to interest in a financed loan, except it's not. think of it as a rental charge. this number is usually expressed in decimal points, i.e., .002.

you want #1 & #3 (which are pre-defined) to be as high as possible, and #2 & #4 to be as low as possible.

with #2, you generally want to start off at invoice and not go more than $1k over with most cars

#4 is usually marked up by dealerships to a certain extent, and can sometimes be negotiated.

the only thing with leasing is that it can get somewhat expensive in the long run.. but if you just need a car for now, then i'd say that's a good way to go. some leases on reliable models like hondas & toyotas can be had very cheaply right now..

IbnMardhiyah · #7 (**permalink**) 03-01-2008, 06:04 PM

Quote:

Originally Posted by sixpakistan

financing involves interest & is not halal

you can

1. lease

2. buy a beater cash

Given that in Islamic finance, the merchant is allowed to charge a higher price [lump sum or installments] for a product which is delivered immediately to the buyer but the payment is delayed ... how are you classifying financing as interest?

sixpakistan · #8 (**permalink**) 03-01-2008, 06:14 PM

Quote:

Originally Posted by IbnMardhiyah

Given that in Islamic finance, the merchant is allowed to charge a higher price [lump sum or installments] for a product which is delivered immediately to the buyer but the payment is delayed ... how are you classifying financing as interest?

I'm not the one classifying it as such, every single bank/manufacturer's FS depts classifies it as & refers to it as "interest." They give you a loan for the full amount of the car minus your down payment, and you pay it back over a fixed period of time.. with interest. That's haram by the standards of Islamic finance.

Now if the seller decided to take a $50k car and instead of charging 5% interest, just factored in the interest into the price and said "this is how much I'm selling you the car for," that might be different (but I'm not sure).

IbnMardhiyah · #9 (**permalink**) 03-01-2008, 06:26 PM

To keep it simple:

By Islamic standards of finance, it's interest when its just money on top of money.

When there is tangible product or real services involved, then the merchant can choose to charge more - either by fixed dollar amount or as a percentage - if he is expected to deliver immediately and take delayed payment or deferred payment. And that, is not haraam.

If the bank is merely extending you a loan for the agreed-upon value of the car and charging you a percentage on top of that amount, then its interest because there was no second transaction whereby the bank took possession of the car while the ownership was in transit between the seller and the buyer.

sixpakistan · #10 (**permalink**) 03-01-2008, 06:53 PM

Quote:

Originally Posted by IbnMardhiyah

To keep it simple:

By Islamic standards of finance, it's interest when its just money on top of money.

When there is tangible product or real services involved, then the merchant can choose to charge more - either by fixed dollar amount or as a percentage - if he is expected to deliver immediately and take delayed payment or deferred payment. And that, is not haraam.

If the bank is merely extending you a loan for the agreed-upon value of the car and charging you a percentage on top of that amount, then its interest because there was no second transaction whereby the bank took possession of the car while the ownership was in transit between the seller and the buyer.

Yeah, except in a conventional auto financing situation, you aren't paying more for the car. You're paying interest on the loan. That's how financing works. Bank gives you loan for $x. You pay back $x+interest. Very simple. The bank isn't selling you the car; they're simply holding the title in escrow until the loan is repaid.

IbnMardhiyah · #11 (**permalink**) 03-01-2008, 06:59 PM

Quote:

Originally Posted by sixpakistan

Yeah, except in a conventional auto financing situation, you aren't paying more for the car. You're paying interest on the loan. That's how financing works. Bank gives you loan for $x. You pay back $x+interest. Very simple. The bank isn't selling you the car; they're simply holding the title in escrow until the loan is repaid.

Yes I'm aware of that. The reason why I was saying what I did was so that Revert could get alternative financing companies [Islamic ones] to finance his car. they buy it first and sell it to him at a slight markup. We do that here in Canada and I know its done in a lot of places in the States as well.

sixpakistan · #12 (**permalink**) 03-01-2008, 07:02 PM

Quote:

Originally Posted by IbnMardhiyah

Yes I'm aware of that. The reason why I was saying what I did was so that Revert could get alternative financing companies [Islamic ones] to finance his car. they buy it first and sell it to him at a slight markup. We do that here in Canada and I know its done in a lot of places in the States as well.

Oh OK

Yeah, it's all good if you go through an Islamic bank.. when I said "financing involves interest" I was referring to conventional car dealer/bank financing

wheelworks · #13 (**permalink**) 03-01-2008, 07:39 PM

Certain brands like Ford have 0% intrest for 5 years or so...

Revert · #14 (**permalink**) 03-01-2008, 08:36 PM

all good advice here. Thanks guys, i'll take it in and see if there are any places that do either 0% intrest finance or Halal financing places. If not i'll buy a banger for a few months and go from there..

wheelworks · #15 (**permalink**) 03-01-2008, 08:57 PM

Quote:

Originally Posted by Revert

all good advice here. Thanks guys, i'll take it in and see if there are any places that do either 0% intrest finance or Halal financing places. If not i'll buy a banger for a few months and go from there..

What I'm working on is driving an el cheapo car (ancient Honda Accord that never breaks down) and saving for a few years and buy a car with cash