Islamic Car Financing: The Story of Ahmed and His Dream Car

It is not a secret that today, the majority of people are looking for more affordable ways to purchase their desired car. This is why more and more people are starting to look at Islamic auto financing or Islamic car financing as a viable option as it is a type of car financing that's available to everyone, regardless of religion. But what is it?

Let’s see the story of Abdullah to understand how he used Islamic auto finance to buy a car.

Ahmed, the father of 2 daughters, has to rush every morning to send his daughters to school and then go to the office. He has to rely on public transport which sometimes cannot maintain the schedule. To reach his office from the school he also has to change modes of transport which sometimes become exhausting and time-consuming. Whenever he sees a father dropping his kids in the school with an affordable car and can wait a bit to say goodbye rather than rushing, Ahmed feels that such a car could make his duties a bit more relaxing and flexible.

But the main hurdle is he does not have enough funds to buy a car immediately. Every day he sees advertisements for car loans around the roads. Even some of his colleagues and friends bought cars using conventional vehicle loans. Sometimes he is also tempted to approach for a conventional loan but he remembers the ayah from the Qur’an (2:275) “Allah has permitted trading and forbidden interest.” One day he was having a chat with his friend Abdullah who works in an Islamic Bank and during the discussion, he expressed how he wished there was an option to buy a car in a Halal way. Abdullah was surprised as he thought how does Ahmed not know about Islamic car financing. Then he understood that maybe no one ever has explained this to him and this is his opportunity to educate his beloved friend about Islamic Banking.

Abdullah: “Ahmed, what if I say there’s actually a Halal way to buy a car in instalments through Islamic Bank?”

Ahmed: “But I don’t believe in Islamic Banking as it appears the same to me as conventional banking”

Abdullah: “Okay let me explain it to you and then maybe you can understand the difference even though in the form it might seem the same. Suppose you came to me for funds to buy the car but you don’t want to pay extra on the money you borrowed as it will be interest or riba. On the other hand, I would also like to make some profit from the transaction I want to make with you. Let’s say you choose a car which’s value is USD 50,000. I will buy the car and rent it to you for a specific time say 5 years.”

Ahmed: “Then how will I own the car if I am paying you rent all the time.”

Abdullah: “It’s good that you raise this point. I will give you an undertaking or formal promise that if you pay the agreed rental for the agreed time, I will gift you the car after you have paid all the rent. ”

Ahmed: “That’s amazing. I can buy a car in instalments without dealing with interest or riba but through trade.

Abdullah: “Yes!! Buying, and renting all are legitimate trades in Islam. So even though the end result might look the same as a conventional loan, Islamic banking follows the rules set by the Shariah”

Ahmed: “Thank you so much for explaining this to me. All these years I thought there was no difference but now I understand the underlying concept of Islamic car financing. But what do you call this mechanism?”

Abdullah: “It is known as Islamic Hire Purchase or in Arabic Al Ijarah Thumma Al Bai.”

Ahmed: "Thank you so much for educating me."

With a big smile on both of their faces, Abdullah helped Ahmed to get Islamic car financing from his bank. Ahmed with a content heart drives his daughters to school and goes to work with more energy. He even explains to his friends and relatives who want to buy a car about Islamic car financing and recommends them to get auto financing from an Islamic Bank.

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