The ruling on buying on Installment Payments

Question :

Is a loan forbidden or not? This while knowing that some people do the following: The man will purchase a new car for approximately 16,000 riyals and sell it to another man for approximately 24,000 riyals to be paid after the passing of a year or on monthly installment payments. Is this method correct or not? Is the increase that the owner of the car takes permissible?

Answer:

It is permissible for the man to seek a loan when there is a need for it, whether it is for a car or something similar. So, he purchases it for a price that is to be paid at a later date and the price is more than the price of the item if it were bought with a cash payment. The increase will be for the alternate payment arrangement. However, it is not permissible to make a sales contract until the car is in possession (of the seller), for example, and the person moves it from it place (to his own place). After that he says, "I bought this car for myself for such and such amount." However, he should not cause harm to the one seeking the loan and add an enormous increase to the price, due to the person's need. Rather, the person who has wealth should be gentle with the person who needs the money, and he should not seek to make profit off of him, except for a small profit. He also should not be harsh in the conditions and he should not abuse him in seeking payment.

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Al-Wadi'ah

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