Is an ''administration fee'' payable to settle a loan considered Riba?

Assalmu alaykum Warahmatulahe Wabarakatu,

My brother has bought a PC from Dell today. He chose the option to 'Buy now and pay later' to finance his purchase. What this transaction entails is that you sign-up for a loan and pay a 10% deposit of the total initially. You then pay nothing up until 12 months, where you either choose to pay the full amount due, or you begin to pay instalments that also include an interest element. If you do pay after the 12th month period, one needs to pay a £49 ‘administration fee’ to settle the total amount due. My question is that is this ‘administration fee’ considered as Riba?

A humble request: As we would like to stay aloof from Riba, and we have committed ourselves to the transaction, it would be highly appreciated if this matter can be dealt with urgency so that we can cancel immediately, it if it is impermissible.

Answered by Sidi Atif Raza Khan

In the Name of Allah, Most Merciful and Compassionate

There is obviously nothing wrong with paying later for a purchase made on spot (assuming the usual conditions are met, primarily price), whether paid in installments or as a lump-sum. Even rescheduling the payment stream on the basis of mutual agreement would be fine.

But payment consideration must be equal to the original amount to avoid riba. The administration fee, whatever it might represent, might be understood as something akin to a penalty of sorts (because no real service or good is transacted as a result of the 12th month elapsing) and any form of non-charitable penalty or payment addition constitutes riba.

Fees are usually associated with a service, and knowing nothing else about this transaction, the administration fee certainly appears ribawi. I have confirmed this with Mufti Muhammad Zubair Usmani.

Atif Raza Khan.