Question:
When in-house financing a car through Toyota, you can go through their own Toyota Financial Services . They still charge interest on the loan provided, why is this halal and how is it different then getting a mortgage through a bank?
Answer:
Buying a Car through Islamic Financing: What’s Allowed and What’s Not
When you buy a car from a company like Toyota or any dealership that owns the car, and they sell it to you at a higher price because you’re paying in installments, this is permissible in Islam. This type of transaction is called Murabaha — it’s when the seller tells you the cost of the item and adds a profit margin, and you both agree on the total price before the sale.
Example:
Let’s say Mahmoud goes to Ahmed and says, “I want to buy your red Camry.”
Ahmed replies, “Sure, it’s $10,000.”
Mahmoud says, “I can’t pay all at once. Can I pay you over the next two years?”
Ahmed says, “Okay, in that case, the total will be $12,000.”
This is halal (allowed) because Ahmed owns the car and is selling it to Mahmoud at an agreed-upon higher price since it’s over time.
But here’s what’s not allowed (haram):
If Mahmoud borrows $10,000 from a bank (that doesn’t follow Islamic rules), and then uses that money to pay Ahmed, and now Mahmoud owes the bank $12,000 over two years — this is riba (interest). The bank didn’t own the car, it just loaned money and is making profit from the interest, which is strictly forbidden in Islam.
So the key difference is:
If the seller owns the car and sells it to you at a higher price through Murabaha, it’s halal.
If a third party (like a bank) lends you money and charges interest, it’s riba and not allowed.