“Zero-Percent Financing”: Is It Really Interest Free?

Hanafi Fiqh

Answered by Shaykh Taha Abdul-Basser

Question: My question is regarding car purchases with 0% financing. Many people argue that there is no such thing as 0% financing when you purchase a car. Even if the dealer says that it is there is always a 0.01% interest.If one is in a situation where their 10 year old car did not pass the safety tes t(obligatory in Ontario to have a license plate), it could be fixed but requires $2000-3000 on a 10 year old car. Now that the temporary sticker has expired and if it gets stopped by police the car will be taken away. Could one qualify to take the financing with 0% financing? Where do you draw the line between the law of the land and avoiding sin like interest?

Answer: Bismillahir-rahmani r-rahim.

Executing deals advertised by auto sales groups or others as “zero percent financing” or “no interest” deals may or may not be permissible, depending on the actual nature of the deal. In reality, such deals often (if not mostly) feature riba since it is typical for the actual documentation (sales agreements, loans agreements, etc) to contain stipulations that are usurious (ribawi) in nature, such as hidden late penalties, interest charges, etc. However, some of the late penalty stipulation are nugatory (mulgha) while others are not. In short it may be permissible to enter some of these deal and not permissible to enter others. The hukm may differ from deal to deal. Before you enter such a deal you should consult a knowledgeable mufti of known achievement in the application of the ahkam of fiqh al-mu`amalat to contemporary finance.

Wa llahu a`lam.

The slave of Allah at Harvard
Taha Abdul-Basser