Most cars in the UK are bought on finance, usually through Personal Contract Purchase (PCP) or Hire Purchase (HP). For a Muslim buyer, the key question is whether the agreement involves riba (interest), which Islam prohibits.
How PCP and HP usually work
In a typical PCP, you pay a deposit and monthly payments, and at the end you can pay a final "balloon" payment to own the car, return it, or trade it in. In HP, the monthly payments cover the whole price and you own the car after the last payment. In both, the finance company normally charges interest, shown as an APR, on the amount borrowed.
Why interest is the main issue
When a lender advances money and charges an increase for time, that increase is riba. Calling it a "charge for credit" does not change its nature. This is why a conventional PCP or HP agreement with an interest rate is not considered Sharia-compliant, even if the monthly payment looks similar to a halal alternative.
How Sharia-compliant structures differ
- Murabaha (cost-plus sale): the provider first buys the car, then sells it to you at a known, fixed price paid in instalments. The profit is part of the sale price and does not grow if you pay late.
- Ijara (leasing): the provider owns the car and leases it to you for a fixed rent. Ownership may pass to you at the end through a separate promise or sale.
- In both, the provider must genuinely own the car before selling or leasing it, and bears the risks that come with ownership.
Questions to ask about any agreement
- Is any part of the cost described as interest or calculated as an interest rate on a loan?
- Who owns the car during the agreement, and when does ownership pass to you?
- What happens if you pay late? Late charges should not be profit for the provider; in Islamic finance they are usually given to charity.
- Is the final price fixed at the start, or can it increase?
- What are the terms for early settlement or returning the car?
Get the contract reviewed
Terms vary between providers, and product names can be misleading. Before signing, you can send us the agreement and we will give you a written Sharia review, explaining any problem clauses and what a compliant alternative would look like.