Purchasing by installment is paying the value of a purchased item divided on installments paid at specific dates agreed on by both parties. This process is permissible in Islam as long as it fulfills 4 rules.

Purchase by installments

This refers to a sale where the price of what is purchased is being paid in installments at specific dates or times. [1] For example, a car being sold for 100,000 of the local currency on terms of an immediate payment of 40,000 and 12 monthly payments of 5,000 each. Such an arrangement as this is permissible,

Conditions: In addition to the aforementioned conditions applicable to sales, the following conditions should be met for sales paid for by installments:

1-The seller must be in possession of the article to be sold and be able to dispense with it at the time of the sale. It is not permissible for the two parties of the sale to agree the price and the terms of payment, and then for the seller to buy the article and hand it over to the purchaser. This is forbidden because the Prophet (peace be upon him) said: ‘Do not sell what you do not possess.’

2-It is not permissible to force the purchaser, either at the time of the deal or later, to pay more than the price agreed if the purchaser defaults on some installments when they fall due. To do so makes the transaction usurious, and all usurious transactions are forbidden in Islam.

3-It is forbidden for the purchaser to delay payment of any instalment if he is able to pay it when it is due.

4-The seller may not retain ownership of the goods after the sale. It is, however, permissible for the seller to stipulate that the goods are pledged to him, in order to guarantee payment of the installments on time.