The '0% Interest' Car Loan
Real-World Halal Checker • Module 1 of 3
"A car dealership offers a loan with 0% interest. However, the contract includes a clause for a 'late payment administrative fee' of $100 per month and an 'early payoff processing fee' of $500. Is this arrangement Halal?"
Analysis
Not Halal. The fixed, percentage-like penalties for late payment function like Riba (interest). The early payoff fee penalizes someone for settling a debt, which is contrary to Islamic principles of encouraging debt relief. These are often seen as 'backdoor Riba'.