Buying a vehicle is an essential part of growing up; if you have the means to buy one, it can benefit you in numerous ways. It helps you move around and gives you more financial structures as you know where a portion of your money is going. Owning a vehicle requires a monthly payment, petrol and maintenance costs to budget for. And as a Muslim, finding financing that goes with your religion may seem hard, but some lenders have Islamic finance that can help you acquire the vehicle you want.
To understand halal vehicle finance and how you can buy a vehicle that is shari’ah compliant, read below.
What is Islamic finance?
If you have been wondering “what is Islamic finance,” then you have come to the right place. Islamic finance is financing that operates under Islamic law. For lenders, Islamic finance ensures that their Muslim customers have shari’ah compliant vehicle finance plans. And, for Muslim customers, it allows them to get financing for all their needs, while still complying with their religious laws; the culture prohibits the paying of interest to lenders. Whether it is to purchase a bakkie, car, house or bike, the types of Islamic finance available include:
- Profit and loss sharing partnership is also referred to as Mudarabah. This is an agreement where the lender provides the other partner, which, in this case, refers to you as the consumer, with capital. As the consumer, you are responsible for managing the capital and the investment. The profit from the agreement is then shared between the two parties in agreement, according to the pre-agreed ratio.
- This agreement is known as Musharakah, which comes in the form of a joint venture where all involved individuals contribute toward the arrangement. The arrangement ensures they share the profit and loss on a pro-rata basis. Musharakah is mainly used to acquire properties where both the lender and consumer jointly purchase the property. The payments made by the customer will ensure the lender transfers the equity of the property.
- This financial agreement is between the property owner and the lessee. The property owner will lease out the property in exchange for payment on a rent to buy agreement. This arrangement will ensure with the property owner transferring ownership to the lessee.
However, in this article, we’re discussing car finance for Muslim customers. This agreement works on a pro-rate agreement which is also known as Mudarabah.
How to buy your first halal vehicle
Now that you’re familiar with the different types of Islamic finance, you can start your car buying process and get the vehicle of your dreams. To buy a car, you need to do the following;
Shop around first
Before seeking Islamic finance in South Africa, you need to know what type of vehicle you want and what is available. You can take a look at private sellers, car dealerships and auctions to see which vehicle piques your interest. You want to shop around first to get an idea of the cost of vehicles, and how much you will need when looking at Islamic finance quotes. If you’re trying to cut down costs on your car loan, it is advisable to choose a pre-owned vehicle, and also pay down a deposit. This will ensure that you purchase a vehicle within your means.
Identify your vehicle needs
Islamic financing allows you to purchase a car, bakkie or motorbike. This allows you the option to finance exactly what you need. For example, if you plan on using your vehicle for work, a bakkie will be the best option for you. Or if you’re interested in a vehicle to go to zip work and back, and explore the city on your off day, then getting a small car with good fuel economy can work for you. It’s important to ask yourself what your vehicle needs are now and in the future to avoid purchasing a vehicle that isn’t right for you.
Do enough research on the vehicle
Cars will always look good when you see them on a showroom floor or at an auction house. But don’t be tempted. Do your research and have a clear idea of what you want to invest in. Find out about the mileage of the vehicle, the total cost you will pay, research what consumers who have the same vehicle feel about the vehicle, its fuel economy and its reliability rating. This will ensure you get a good idea of the type of car you will have. The last thing you need is to purchase a vehicle that has expensive repair parts. Knowing this upfront will ensure that you get financing for the vehicle that will be able to last you more than five years. With Islamic financing, you work towards owning the asset, therefore, it needs to be a vehicle that will be an asset to you for a long time.
Seek financing
Luckily for you, some lenders offer Islamic financing in South Africa, and you can find one that meets your requirements. When seeking halal car financing, you need to have all the necessary documentation for your application process, the same way a traditional vehicle finance agreement would go. Those documents include:
- Your identification document.
- Copy of your driver’s license.
- Proof of employment, either a three months bank statement or payslip.
- Proof of address that is not older than three months.
Those documents will be used to see if you qualify for finance selection, as well for checking your credit report to see your score. To see your affordability prior to going to a lender, you can use a vehicle finance calculator that will calculate your estimated monthly repayments as well as your profit rate. These figures will give you an idea of how much you are expected to pay.
Get Islamic-compliant insurance
Conventional insurance isn’t compliant to Islamic law, but there is an alternative; Islamic-compliant insurance in South Africa. You will need insurance when seeking out financing to ensure that should anything happen; you are financially secured. Islamic insurance has a more of a community-based approach which manages any risks in a respectful manner. So, make sure that you have insurance.
Final thoughts
Diversity and the understanding of one’s religion are two of the vital basics for service delivery. To ensure that you feel comfortable and continue to follow Islamic laws in everything that you do. With the financial aspect being solved and readily available for you to apply, the only thing left to do is to find the right vehicle for you. And in most cases, that can be the tricky part. But, if you follow our easy guide to acquiring Islamic finance, it shouldn’t be a problem for you to find the vehicle of your choice.
Website: WesBank
