Car Financing Through Toyota: Bank vs. In-House

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Car Financing Through Toyota: Bank vs. In-House

Question
Assalamu Alaikum wa Rahmatullahi wa Barakatuh,
I recently went to Toyota to finance a car. They told me they will give me the car through financing, and the monthly payments include interest. They said the price of the car will not change, but there will be interest added. My question is: is this type of financing considered haram, or is it permissible for me to take it? If it is not allowed, could you please advise me on what alternatives would be permissible? JazakAllahu khairan for your guidance.

Answer
Alhamdulillah, wassalatu wassalamu ala rasulillah, wa ala alihi wa sahbihi ajmain.

1) If Toyota Uses a Bank or Third-Party Finance

If Toyota arranges the financing through a bank or outside finance company, then the bank pays Toyota the cash price of the car and you repay the bank with added interest. This is a conventional loan. The Qur’an says: “Allah has permitted trade and forbidden riba.” (al-Baqarah 2:275). The Prophet ﷺ cursed those who take, give, or witness riba (Muslim).

  • This form of financing is haram because it is a loan with interest, not a sale.

2) If Toyota Finances Directly (Toyota Credit – In-House Financing)

If Toyota (or its own credit arm) owns the car and sells it to you directly on installments at an agreed fixed price, this is permissible.

  • Example: The cash price is $20,000, but Toyota sells it on deferred installments for $24,000, fixed and agreed upon at the time of contract.
  • This is a murabaha-style sale (cost-plus with deferred payment) and is halal, since it is trade, not riba.
  • One must confirm that the financing is truly in-house and not actually arranged through an outside bank.

3) Other Permissible Alternatives

  • Lease-to-Own (Ijarah with option to buy): Companies such as GoAuto and others provide structures where the car is leased with ownership transferring at the end. If done properly, this is permissible.
  • Islamic Murabaha: Some Islamic finance providers in Canada offer murabaha contracts where they buy the car and resell to you at a higher fixed price for installments. This is halal if properly structured.
  • Cash Purchase: Though not always easy, saving and purchasing outright avoids all doubt.

Final Ruling

  • If Toyota finances the car through a bank or third-party loan, this is a riba-based contract and haram.
  • If Toyota itself (through Toyota in house financing) sells the car to you directly on a fixed deferred price, this is permissible. You must check carefully who is actually financing the contract.
  • Other halal options include lease-to-own programs and Islamic murabaha providers.

And Allah knows best.