QUESTION:
When a person fails to pay back the loan from a bank, the bank reclaims his assets, for example, a car, and puts it on sale, is it permissible for a Muslim (who had nothing to do with the person who was unable to pay back the loan) to buy that car from the bank?
ANSWER:
Firstly, we wish to clarify our stance regarding financing vehicles or properties through commercial banks. Since bank financing is generally interest-based which is Haraam, we do not approve of it. However, we will discuss the reasons for repossessing vehicles in our Fatwa for your understanding. This in no way means that we approve of vehicle financing from commercial banks.
When a bank finances the purchase of an item through a loan or a lease agreement, the client (borrower) agrees to make regular payments to the bank to repay the loan, or installments. If the client fails to make these payments according to the terms of the agreement, the bank may take steps to repossess the item [[i]]. Repossession typically involves the following steps:
1. The client falls behind on their loan or lease payments. This could be due to financial difficulties or other reasons that prevent them from meeting their obligations.
2. The bank typically sends a notice of default to the client, informing them that they are in breach of the agreement due to missed payments.
3. In many cases, the bank may give the client an opportunity to remedy the default by catching up on missed payments or working out a modified payment plan.
4. If the client fails to resolve the default, the bank has the legal right to repossess the item. Repossessions can vary depending on the type of item and the laws governing repossession of goods, but it generally involves taking physical possession of the item.
5. After repossessing the vehicle, the bank may choose to sell the repossessed item to recover the outstanding debt. This can involve selling the item at an auction or through other means. The bank’s goal is to recoup the remaining loan balance and associated costs.
6. If the sale of the repossessed item does not fully cover the outstanding debt, the client may still be held responsible for the balance owing on the loan or lease agreement.
Some Ulama are of the opinion that purchasing bank-repossessed items is permissible, while others are of the opinion that, if the client is unable to meet his monthly instalments, then the bank should return the total money paid by the client, and then repossess the vehicle. However, this is not possible with the commercial banks (in our country) as all monies paid towards the vehicle are forfeited; hence, this option does not exist.
Our Darul Ifta’s view is that one should refrain from purchasing repossessed items or vehicles. Reasons for such a stance are stated below:
1. First and foremost, enacting a sale where the seller imposes the condition that, should the buyer fail to meet his monthly instalments, the purchased item will be confiscated from him, and any amounts paid thus far will not be refunded, renders the sale Faasid (corrupt) [[ii]]. If this condition can be waived or somehow avoided, then too the following discrepancies tend to take place:
1.a. When a vehicle is repossessed, the bank neither refunds any past payments made by the buyer, nor does the bank return any monies that the bank receives after auctioning the vehicle. This means that the bank takes possession of the item as well as the monies paid towards the item, which is impermissible in Shariah as either one of the transacting parties cannot have both the item, and the money at the same time [[iii]]. This is an injustice that the vehicle (which belonged to the buyer) is taken away by force and the owner gets nothing back in return (even after the vehicle is auctioned). In fact, many times there are such clients who pay most of the installments towards their vehicles, and by missing just a few installments (due to financial difficulty), their vehicles are repossessed. This goes against the very grain of Shariah as the Quraan Sharif states:
“If he (the debtor) is in financial difficulty, then allow him grace until a time of ease. (However, remember that) it is better to be charitable if you only knew (the tremendous reward for this act).” [Surah Baqarah – Verse 280].
Often, the bank (after auctioning the vehicle), recovers (together with the instalments that were paid in), much more than the original selling price, whereas the surplus received should be given to the owner/buyer, but this never happens.
2. If the buyer happily gives up possession of the item, then this will be regarded as Iqaalah, in which case, if the sold item is still in pristine condition, the full purchase price ought to be refunded, and if its condition has deteriorated (due to usage), then at least the market-related value ought to be refunded [[iv]]; but this never happens in the case of bank-repossessed vehicles. Due to this, the bank will be regarded as a usurper or oppressor, and by purchasing such vehicles, one is indirectly aiding the bank in usurping the rights of others.
In conclusion, although some scholars have permitted the purchasing of repossessed vehicles, we advise abstention even though one may be purchasing the vehicle at a discounted price, as the vehicle has been forcefully repossessed from the owner, many a time due to a minimal amount outstanding, hence such an item will be void of blessings. If one can purchase a good vehicle from an honest and reliable dealer on terms, and free of interest, then one should opt for such a purchase. Alternatively, one may take an interest-free loan and purchase a vehicle from a private seller or dealership [[v]].
ALLAH TA’ALA ALONE IN HIS INFINITE KNOWLEDGE KNOWS BEST!
ANSWERED BY:
Mufti Abdur Rahman Abdur Razak
Date:- 19 Safar 1445 / 05 September 2023
CHECKED AND APPROVED BY:
Mufti Mohammed Desai Saheb
[i] Vehicle Repossession | Consumer Advice (ftc.gov)
[ii] الهداية في شرح بداية المبتدي (3/ 48)
ثم جملة المذهب فيه أن يقال: كل شرط يقتضيه العقد كشرط الملك للمشتري لا يفسد العقد لثبوته بدون الشرط، وكل شرط لا يقتضيه العقد وفيه منفعة لأحد المتعاقدين أو للمعقود عليه وهو من أهل الاستحقاق يفسده كشرط أن لا يبيع المشتري العبد المبيع؛ لأن فيه زيادة عارية عن العوض فيؤدي إلى الربا، أو؛ لأنه يقع بسببه المنازعة فيعرى العقد عن مقصوده إلا أن يكون متعارفا؛ لأن العرف قاض على القياس، ولو كان لا يقتضيه العقد ولا منفعة فيه لأحد لا يفسده وهو الظاهر من المذهب كشرط أن لا يبيع المشتري الدابة المبيعة لأنه انعدمت المطالبة فلا يؤدي إلى الربا، ولا إلى المنازعة.
[iii] Fataawa Darul Uloom Zakaariyya Vol.5 Pg.74
[iv] الهداية في شرح بداية المبتدي (3/ 55)
“الإقالة جائزة في البيع بمثل الثمن الأول” لقوله عليه الصلاة والسلام: “من أقال نادما بيعته أقال الله عثرته يوم القيامة” ولأن العقد حقهما فيملكان رفعه دفعا لحاجتهما “فإن شرطا أكثر منه أو أقل فالشرط باطل ويرد مثل الثمن الأول“…… وكذا إذا شرط الأقل لما بيناه إلا أن يحدث في المبيع عيب فحينئذ جازت الإقالة بالأقل.
[v] (Partially adapted from Darul Ifta Archives – Purchasing bank-repossessed vehicles – Fataawa.co.za)
