{"id":6986,"date":"2022-05-31T19:55:41","date_gmt":"2022-05-31T19:55:41","guid":{"rendered":"https:\/\/ifg.local\/articles\/pcp-hp-pch-car-finance-the-halal-guide\/"},"modified":"2023-09-21T10:03:46","modified_gmt":"2023-09-21T10:03:46","slug":"pcp-hp-pch-car-finance-the-halal-guide","status":"publish","type":"post","link":"https:\/\/www.islamicfinanceguru.com\/articles\/pcp-hp-pch-car-finance-the-halal-guide","title":{"rendered":"PCP, HP, PCH Car Finance: Halal Guide | Islamic Finance Guru"},"content":{"rendered":"
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- Buying in cash is usually the right route<\/a><\/p>\n

- The Financing that Isn\u2019t<\/a><\/p>\n

- Is Hire Purchase Finance sharia-compliant?<\/a><\/p>\n

- Are Personal Contract Purchase (\u201cPCP\u201d) Agreements Halal?<\/a><\/p>\n

- Are Personal Contract Hire (\u201cPCH\u201d) Agreements sharia-compliant?<\/a><\/p>\n

- Halal Alternatives<\/a><\/p>\n

- Conclusion<\/a><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n

 <\/p>\n

There is a dizzying range of car finance options available on the market \u2013 from PCP, PCH, to HP and others. But it is difficult as a Muslim to navigate this financial journey as you are unsure if what is being offered is haram or halal.<\/p>\n

<\/p>\n

The aim of this article is to point you in the right direction.<\/p>\n

We\u2019ll cover.<\/p>\n

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  1. Why buying in cash is usually the best option if you can do it.<\/li>\n
  2. Is Hire Purchase finance halal?<\/li>\n
  3. Is PCP car finance sharia-compliant?<\/li>\n
  4. Is PCH car finance halal?<\/li>\n
  5. What is our overall conclusion?\n<\/li>\n<\/ol>\n

    <\/a><\/p>\n

    Buying in cash is usually the right route<\/h2>\n

    Before you even think about going down the finance route, consider buying in cash.<\/p>\n

    If you have the savings to buy in cash and can afford to spend that money, then buying in cash could make a lot of sense.<\/p>\n

    The reason is because you\u2019ll end up paying around 4-10% APR on any car finance. That means if you borrow \u00a31000 you will be paying between \u00a340-100 back every year. At the same time, if you\u2019d saved that \u00a31000 you would make back around \u00a320 if you\u2019re lucky (as interest rates are low).<\/p>\n

    So it is better for you in this situation to pay using cash, and avoid paying that \u00a340-100.<\/p>\n

    The only situation where it is better to go for car finance is if you can find an investment that will yield you more than you will save in interest. But for that you need to find an investment returning more than 4-10% \u2013 which is pretty hard.<\/p>\n

    Another route to consider is the 0% credit cards. If you are confident you will be able to pay them off before having to pay any interest, then they are a clever way of getting an interest-free loan to pay for your car.<\/p>\n

    Do note though that you will have to pay an admin fee to get access to this interest-free loan. That is fine from a sharia perspective as its just an admin fee, but of course commercially it is money you have to part with, so do factor that into your calculations.<\/p>\n

    <\/a><\/p>\n

    The Financing that Isn\u2019t<\/h2>\n

    Sometimes a company may offer you a finance option due to the additional perks that come with it. Dealers gets paid handsomely by finance companies so want to get you to use them.<\/p>\n

    However, if you can pay the entire amount the week after without incurring any actual finance costs and get all the perks they might be offering for taking the finance \u2013 then that\u2019s all fine.<\/p>\n

    <\/a><\/p>\n

    Is Hire Purchase Finance sharia-compliant?<\/h2>\n

    A hire purchase agreement involves you paying a deposit on the car, with the remaining amount being purchased by the lender.<\/p>\n

    To give a clear example:<\/p>\n