Buying a flat by instalments when there is a clause in the contract that stipulates a penalty in the event of late payment
Question I went to buy a flat from someone in installments. But when I read the contract I found a condition that says I have to pay a fine of 2000 pounds if I delay paying the payment on time. As far I know this condition equals Riba (interest). So what is the ruling on…
Question
Praise be to Allah.
If the contract includes
the stipulation that a penalty be paid in the event of late payment, then it
is a haraam contract and it is not permissible to enter into it, even if one
is certain that he is able to pay, because it is approval of riba and
committing oneself to it, which is haraam. And because a person may face a
problem which prevents him from paying, such as sickness, travel and the
like.
The Islamic Fiqh Council
has issued a statement that it is haraam for the seller or bank to demand
payment of a penalty in the event of late payment of an instalment.
This was stated in the
statement of the Fiqh Council no. 133 (7/14) during its fourteenth session
in Duha:
If the buyer is late in
making a payment it is not permissible to oblige him to pay anything in
addition to his debt with or without a prior condition, because that is
haraam riba.
End quote from Fiqh
al-Mu’aamalaat al-Hadeethah by Dr. ‘Abd al-Wahhaab Abu Sulaymaan (p.
571).
This person should be
advised and told of the prohibition on what he has done by stipulating riba,
and he should be told to take sufficient precautions with the buyers, such
as asking for a guarantor, taking cheques, and keeping the apartment in his
name as a pledge, so that the buyer cannot sell it until he has paid off all
the instalments he owes, and so on.
We ask Allaah to guide us
and you.
And Allaah knows best.
