I have a business where I sometimes sell goods and on monthly installments over the course of one to two years. I charge a 35% higher price on the goods that I sell on installment, but the market price of the product does not increase by that percentage during that time period of one or two years. The customer knows about the 35% and agrees to it, because he does not have enough money to purchase the item on the spot. Is this lawful in Islam or is it a form of interest?
Sheikh Râshid Hamad al-`Alawî, professor at al-Imâm University , al-Qasîm Branch
Selling things on installment is permissible as long as the seller owns the merchandise that he intends to sell in that way. The seller and buyer may reach an agreement among themselves on the price and the method of settlement. Usually, the amount of selling by installments is higher than that of an immediate cash payment.
As long as it is the actual owner or purchaser of the goods who will sell them to his customers on credit installments, then it is lawful. Allah says: “Allah has permitted trading and forbidden interest (ribâ).”
In order for the seller to avoid falling into any dubious or unlawful practices, he is advised to observe the following:
1) The seller should buy the item himself if it is not already in his possession. He should not have the customer make the purchase on his behalf. The reason for this is that the customer may not act as an agent on behalf of the one who intends to sell the item to him on installments, since acting in such a capacity is in conflict with the fact that he is also the customer. In such a situation, he is only an agent by name.
2) If the customer decides not to buy the item on installments after the questioner has already purchased it, he should not be penalized or liable, because the customer’s request is an unbinding promise and does not count as a contract.
3) Additional charges may not be imposed upon failure to pay in a timely manner.
Source: Islam Today
-- Al Arabiya Digital