Answer
Wa `alaykum as-salamu wa rahmatullahi wa barakatuh.
In the Name of Allah, Most Gracious, Most Merciful.
All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.
In this fatwa:
As for you question, this kind of dealing is permissible as the price on credit is normally higher than the cash one.
In his response to your question, Prof. Dr. Monzer Kahf, Professor of Islamic Finance and Economics at Qatar Faculty of Islamic Studies, states:
Yes, this arrangement is permissible because it is recognized in the Shari`ah that the price on an item on credit may often be higher than its price on cash.
The difference is against using the item while you did not give up its equivalent.
Interest is an increase in a debt and the debt does not, in reality, create or generate added value through time. Assets and goods generate added value through time.
In our Shari`ah, finance is not prohibited. Rather, what is prohibited is the finance which starts from a debt like a loan, not when it starts from a commodity like giving a car as in your question.
Allah Almighty knows best.
Editor’s note: This fatwa is from Ask the Scholar’s archive and was originally published at an earlier date.