Justification of Interest and EMI

Question

This question is regarding a justification given to me about EMI.

Suppose I want to buy something which is say worth 100,000$ but I can't afford that much at a time. So the company gives me another option that I may get it now, and I can pay in 6 months but then I'll have to pay 110,000$. They try to make me understand that it is not interest rather inflated price i.e. price after 6 months. The other logic that the company gives me is that suppose there are 2 shops selling the same thing, one sells at 100,000$ and the other sells at 110,000$. You choose to buy it from the latter (costlier shop) because the owner is someone you know or maybe some other personal reason. They say that interest won't be there when I buy from the costlier shop.

Then, they try to make my purchase look just like the above case and they try to justify it in the same way that I should assume that the same company has two shops(offers) one is at 100,000$ and other is at 110,000$. I simply choose to buy from the costlier offer due to my personal bias(More time is given to me for the payment).

But what I feel is that its just a way of justifying interest. Please enlighten me on this.

Answer 1

The problem in interest isn't just the higher price. The most important problem with interest is that the price is unknown.

Under Islam, all contracts must have a known and decided exchange agreement, and there cannot be an aspect of the unknown in it.

So, there is nothing inherently wrong if you say that you will pay a total of 110,000 over 6 months rather than the current price of 100,000. But, the important thing is that the price will stay 110,000 regardless of unforeseeable problems such as inability to pay in time. If you become late by 1 month, the price should stay 110,000 since that was the initial decided price. If you can negotiate such an agreement with the company, there is nothing wrong with it.

However, interest means that the price can change based on when the person pays it. This is haram because the exchange is not completely known before the transaction, but is something hidden and subject to change.

Answer 2

As long as the product or service exists, its not interest. It would be interest when money is exchanged for different amount of money. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest.

Answer 3

Just ask these question to yourself and you will get your answer:

1. What will happen when you will not pay 2-3 EMI?
2. What if your situation changed and you cannot pay at all?

I asked the same question to Masjid Manhattam Imam, regarding to buy a car on insurance with bank, he clearly said, that's RIBA and HARAM.