Leasing a car - Is it permitted, and if so with what conditions?

Is leasing a car allowed? ie you make monthly payments so that in essence you are renting a car.

salamu `alaykum wa rahmatullah

I pray you are well and in the best of health.

Yes, leasing a car is permitted if:

(a) All the rules and conditions required by the shari`ah are met, and
(b) There is nothing stipulated in the lease contract that goes against the shari`ah (such as aspects of riba').

In the terminology of Islamic Law, leasing is known as 'Ijarah' and many of the major scholars of Islamic Finance, such as Mufti Taqi Usmani, have written in detail regarding its rules and conditions. Some of the basic rules and conditions for leasing are:

(1) It is a contract wherein the owner transfers the usufruct of the item being leased to another person for an agreed period and at an agreed consideration,
(2) The leased property remains in the ownership of the seller, and only its usufruct is transferred to the person it is being leased to. (This implies that anything that is consumable - like food or money - cannot be leased)
(3) Since the corpus of the leased property remains in the ownership of the lessor, he is responsible for all the liabilities emerging from the ownership e.g. paying the property tax on a house leased out.
(4) All the liabilities related to the use of the property shall be borne out by the lessee e.g. electricity and water bills in a leased house.
(5) The lessee is liable for misuse and negligence - otherwise he is not as it is considered a trust.
(6) The period of the lease must be determined and stipulated. The amount of rent must also be determined for the whole lease period. The amount can differ for different 'phases' if specified clearly, otherwise the contract is considered corrupt. The upshot is to contractually stipulate things in a way that will avoid future dispute.
(7) The lessee can use the item for only the purpose it was stipulated for.
(8) There should be nothing in the contract that entails interest, such as late-payment fees.

Thus, it can be seen that the Islamic understanding of leasing differs somewhat from prevalent, conventional forms of leasing. One should ensure that all his/her actions are in conformity with what the shari`ah has prescribed before proceeding to do anything.

For a detailed introduction to the concept of leasing please refer to Mufti Taqi Usmani's "Introduction to Islamic Finance".

Also see:

http://qa.sunnipath.com/issue_view.asp?HD=1&ID=382&CATE=43

Wasalam
Salman Younas

Approved by Faraz Rabbani