+ How does Vehicle Financing Work? (Islamic Type) | TechLara - Loan & Insurance

Friday, 15 April 2022

How does Vehicle Financing Work? (Islamic Type)

  Ahamed       Friday, 15 April 2022

HERE IS A DETAILED EXPLANATION OF HOW VEHICLE FINANCING WORKS. THE ARTICLE ALSO ANSWERS QUESTIONS SUCH AS HOW TO APPLY FOR IT AND WHERE YOU CAN GET IT. CHECK IT OUT!

Vehicle Financing how does vehicle financing work in an	 Islamic bank let us have a stand by the	 story of Yusuf Yusuf a young	 professional and a car enthusiast is	 considering if it's the right time to	 purchase a car although he has set his	 eyes on a car he doesn't have enough	 funds to purchase the car outright

How does vehicle financing work in an Islamic bank let us have a stand by the story of Yusuf, Yusuf a young professional and a car enthusiast who is considering if it's the right time to purchase a car although he has set his eyes on a car he doesn't have enough funds to purchase the car outright.

with better understanding and being convinced to the benefits of Adjara yusuf decides to get his vehicle financed with an Islamic bank and also recommends the same to his family and friends

Yousuf thinks to himself how will I buy it since I don't have the money I will have to opt for a financing facility but then he remembers that God has permitted trade and forbidden interest. use of thinks to himself how will I buy it since I don't have the money I will have to opt for a financing facility but then he remembers that God has permitted trade and forbidden interest.

Vehicle Financing use	 of thinks to himself	 how will I buy it since I don't have the	 money I will have to opt for a financing	 facility but then he remembers that God	 has permitted trade and forbidden	 interest

He was informed by the bank officer of a type of vehicle financing called jarrah which in Arabic refers to renting an asset. 

IJARAH VEHICLE FINANCING SO HOW DOES THIS WORK?

Vehicle Financing Vehicle Financing

So how does this work this transaction works on a rental based structure which forms a relationship of a lessor and lessee the bank as the lessor purchases the vehicle based on the use of spread friends and rents it out to Yusuf who is the lessee for an agreed period of time for an agreed rental amount?

since Yusuf indicates that he eventually would like to own the vehicle the bank gives Yusuf an undertaking that upon him duly paying all his monthly rentals for the agreed period the vehicle will be gifted to him by the bank.

HOW ISLAMIC VEHICLE FINANCING DIFFERS FROM INTEREST BASE LEASING?

Vehicle Financing How does vehicle financing work in an Islamic bank let us have a stand by the story of Yusuf, Yusuf a young professional and a car enthusiast who is considering if it's the right time to purchase a car although he has set his eyes on a car he doesn't have enough funds to purchase the car outright.

To care about Yusuf's doubts as to how Islamic vehicle financing differs from interest base leasing. The officer informs yusuf that if the financed vehicle has lost its usage purpose the customer is not liable to pay the rental for the period in which the vehicle is not functional because it is on rent.

For example, if the vehicle meets with an accident and is garaged for one month for repairs the customer is not required to pay the rental for that month unless the non-usability of the vehicle is due to misconduct negligence and breach of terms of the contract by the customer.

Whereas an interest-based leasing system would require the monthly payment irrespective of the usage condition of the vehicle further the banking officer explains that the Islamic bank does not profit from charging the customer any penalties for late payment as the rental amount is already agreed.

However, this feature can be easily abused and will result in unduly impacting the profit earning of an investor who has invested his money with the bank in order to avoid this abuse the customer obtaining vehicle finance is required to undertake to make a pre-agreed donation to charity through the bank in case of such delay payments.

however this feature can be easily abused and will result in unduly impacting the profit earning of an investor who has invested his money with the bank in order to avoid this abuse the customer obtaining vehicle finance is required to undertake to make a pre-agreed donation to charity through the bank in case of such delay payments

Any such donation is completely prohibited from entering the investment profit pool of the bank.

HOW TO SET UP FULL PAYMENT ISLAMICVEHICLE FINANCING?

Vehicle Financing Vehicle Financing

In case yusuf decides to settle the facility early the banking officer explains that yusuf is permitted to do so which will result in the termination of the Ijara Contract and the bank will now offer to sell the vehicle to use under a sale contract of which terms are to be agreed at such point.

With a better understanding and being convinced of the benefits of ijara yusuf decides to get his vehicle financed with an islamic bank and also recommends the same to his family and friends.

So now that you know how vehicle financing works in an Islamic bank you too can make the right decision when looking to purchase a vehicle.


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