When it comes to buying expensive or larger items for work or home, being able to split the cost can soothe a few headaches! However, there are a few purchase options – for example, when financing a car – that may not be considered legal under Sharia guidelines. For example, is PCP halal or haram?
Let’s take a look at what PCP actually means, and whether or not it’s a halal practice.
What exactly is PCP?
PCP stands for Personal Contact Purchase. It’s a type of car financing that allows motorists to split the costs of vehicle buying on a monthly basis. PCP options allow buyers to effectively pay less than they might expect through traditional loan instalments, and they also have the option to release their car before the final payment processes.
PCP is considered much better value for money than HP (hire purchase) in some ways, as PCP won’t take into account the complete value of your car across monthly payments. Its place alongside Sharia laws, however, is where things get a little complex.
Is PCP a halal practice?
PCP is not halal. It’s considered haram in line with Sharia expectations that no Muslim should pay interest – whether through a bank, lender, or alternative trading avenue. Islamic laws state that interest is considered exploitative, which means many car financing (and other loan options) are haram.
However, this doesn’t mean Muslims are barred from borrowing money outright. In fact, Sharia permits observers to rent or lease cars and other assets providing there is no interest included in payments they make. Many Muslims seeking finance to help pay for major assets consult halal financiers for advice, guidance and recommendations.
While PCP does split the cost of paying for a car, banks and lenders will expect borrowers to pay interest on top of the value they’d generally expect to clear in full.
Is it worth leasing a car instead?
Leasing a car is a popular, largely halal alternative to PCP, because there’s no interest involved, and you can still choose to ‘rent’ your vehicle for as long as you need it. You’re not tied into purchasing your vehicle by the end of the process.
As with all financing options, while haram elements are missing from halal-certified car leasing agreements, there are still stipulations you must tread carefully around. For example, you will need to ensure you drive your vehicle within an agreed mileage. Otherwise, you’ll have to pay for the extra miles you drive over the top.
You should also be careful to return any car you lease through a halal dealer in a suitable condition. Otherwise, you may be expected to pay for any damage incurred.
Ultimately, car leasing gives you a halal route towards running a car split over multiple payments – but you won’t get to own your vehicle at the end.
PCP financing isn’t halal – but thankfully, there are alternative, halal-friendly options you can consider if you want to split the cost of paying for a vehicle. Crucially, providing your bank or lender doesn’t expect you to pay interest throughout your agreement, you don’t need to worry about breaching Sharia laws.
Why not consider looking for a personal loan recommended by a halal financial advisor, or leasing a car in the short or long term? You may not want to own your car at the end of the agreement – whereby leasing may be your next best choice.