Shaikh Sālih Al-Fawzān — The Ruling on Late Fees / Fines / Penalties

In the name of Allāh, the Most Merciful, the Bestower of Mercy.

Question: In buying and selling — if a person buys something from someone, or sells somebody an item agreeing to be repaid at a specified later date — is it permissible to stipulate a conditional penalty? So if the person is late to pay at the specified time, the repayment amount is increased. What is the ruling of this action?

Shaikh Sālih Al-Fawzān (may Allāh preserve him) answered:

“This is the Ribā (usury) of Jāhiliyyah (pre-Islamic ignorance) and it is not permitted. If the debtor did not make the payment of the debt when the payment date came around, his debt would be increased, and his timeframe to repay would be extended [in exchange]. That is the usury of Jāhiliyyah. Those who say: either you make the payment [now], or you pay more [later]. So they increase the amount of the debt, and they annul that repayment date. And Allāh (﷿) has forbidden that, and threatened to punish it with the most severe punishment.

If the repayment date comes around, and the debtor is able to pay (mūsir), then he must pay it off. And if he refuses, then he is forced to repay — such that it can reach the stage where the ruler has to intervene, and take his wealth from him and pay off his debt.

This is due to the saying of the Messenger (﵌) who said: ‘The delaying of repayment (layy) for the one who possesses the wealth (wājid) desanctifies his honour, and makes permissible his punishment.’

The ‘wājid’ is the wealthy one, and ‘layy’ is to delay.

If he is unable to pay (muʿsir) however, then it is obligated to wait [‘til he is able], without increasing his debt, due to the saying of He (the Most High):

وَإِن‭ ‬كَانَ‭ ‬ذُو‭ ‬عُسْرَةٍ‭ ‬فَنَظِرَةٌ‭ ‬إِلَىٰ‭ ‬مَيْسَرَةٍ

‘And if the debtor is in a hard time (has no money), then grant him time ‘til it is easy for him to repay.’
— Sūrah Al-Baqarah (2): 280

Naʿam.”

Translator’s Note

With the sudden proliferation of “Buy now, pay later” and “Pay-in-3” services hitting the market such as Klarna, PayPal Pay Later, Tamara (and others), some people have become confused regarding the permissibility of using such services due to misleading claims such as:

• Shariah-compliant
• Interest-free
• No hidden fees
• etc.

A lot of this comes down to a misunderstanding as to what forbidden usury (ribā) includes and what it does not include. As Shaikh Al-Fawzān (may Allāh preserve him) clarifies in the above translation, any sort of late fee additional to the agreed-upon price is considered to be usury, and what the vast majority of these “buy-now-pay-later” services stipulate is that if you do not pay your instalments in time, they will give you an extension on the repayment window, but they charge an additional percentage or fixed amount as a late fee. This is an impermissible transaction to enter into.

When they say that you are paying “interest-free”, what they mean is that they are not increasing the base price of the item that you are purchasing. For example: if a smartphone costs 1000 pounds if you purchase it outright, they may charge you 250 pounds per month for 4 months — so they haven’t added anything to the base cost of the item, so they claim that this is interest-free. However, due to the fact that the contract contains late fee clauses, it is usurious for that reason, and therefore harām.

In fact, if a person was selling a smartphone for 900 pounds, and you requested a payment plan from him, so he decides to sell it to you for 1000 pounds spread out over 10 months (at 100 pounds per month), then this negotiation and transaction is permissible and is not considered to be Ribā, as long as the final price and time of repayment are known and agreed upon. This is because delayed payment for an item, whether in instalments (taqsīt) or in one delayed lump sum, is permissible by the consensus of the scholars, and it is allowed for the buyer and seller to negotiate prices and terms before concluding the transaction.

In a similar vein, it is allowed for a seller to discount an item for a potential purchaser if that buyer is promising a quick, up-front payment — just as it is allowed for him to sell for a higher price if his payment is to be delayed. None of this is interest or usury, and it is permitted.

As for a person agreeing to sell the smartphone over 10 months at 100 pounds per month, and then charging a late fine if the buyer misses his repayment deadline; then this is what is usury (ribā) and this is what is harām. It is impermissible for both the buyer and the seller to enter into this kind of agreement.

So don’t be fooled by the claims of being “interest-free” or “Shariah compliant” — even if the service has been approved by a board of so-called Islamic financial experts and ‘scholars’. If it is not in agreement with the evidences of the Qur’an, Sunnah and Ijmā’, then it cannot be truly compliant with Allāh’s Sharī’ah — regardless of how many stamps and certificates they wave around. And Allāh knows best.

Translated by: ʿAbdullāh ʿAbdul-Wāhid Alam

Version 1.0 — 02 August 2023

Original Video below: