A person bought a car from me on a 30-month installment plan, where the price of the car was set at 25% higher than the original selling price. Six months later, he wants to pay off the remaining installments. He claims that he deserves a 25% reduction on all the installments that he is paying early, since it is unfair to charge him 25% for financing that he is not taking advantage of. Is this correct?
Sheikh Hamad al-Haydarî, professor at al-Imâm University
It is permissible to sell something – like a car or a house – through installment payments and charge a higher price than you would charge for selling it for the full amount up front. The buyer is obliged to pay each installment on time.
The buyer and seller can come to an agreement where the buyer pays off the full amount earlier and the seller reduces the total price. This is a matter of disagreement among Muslim scholars, but the strongest view is that it is permissible, since there is no injustice in it.
We must understand that the extra money in such a contract is not interest, since it is from the start a fixed monetary sum in exchange for some good or service. Interest is where an excess of money is paid on top of money borrowed for a period of time.
In a case where a person receives a discount for paying off the installments early, it is simply a case where the seller waives a portion of the purchase price.
If a predetermined discount for early payment is agreed upon at the time of sale, then the seller is obliged to honor the discount. On the other hand, if the buyer comes with the full amount of money later on and requests a discount for paying off the installments early, the seller is not obliged to grant it, since there was no pre-existing agreement.
Of course, there is no problem if the buyer voluntarily pays off the full amount of the agreed-upon purchase price early without seeking a discount.
And Allah knows best.
Source: Islam Today
-- Al Arabiya Digital