DEFERRED PAYMENT CONDITIONS

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Deferred payment is prohibited for gold, silver and currency. 

Both parties must clearly agree and state definitively whether the deal is based on immediate payment or deferred payment. If it is deferred payment, the deferred payment amount becomes a form of debt that the buyer owes to the seller.

 

'A'isha (Allah be pleased with her) reported that Allah's Messenger (peace be upon him) bought from a Jew grain for a specified time; and gave him iron coat-of-mail of his as a pledge.
Sahih Muslim 1603c

 

 

DUE DATE 
The due date of payment is fixed. The due date cannot be based on uncertain events. The due date can be fixed as a specific date (or) a specified period 

 

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DEFERRED PRICE
The deferred price may be higher than the price for immediate payment, but must be fixed at the time of sale.  [Some scholars have differed on this matter, but the majority of scholars, including the four imams, were of the view that it is permissible to charge more for deferred payment.

 

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REFERENCES
“O you who believe! Eat not up your property among yourselves unjustly except it be a trade amongst you, by mutual consent” [Quran 4:29]

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The general meaning of this verse indicates that trading is permissible if there is consent from both parties. If the purchaser agrees to pay a higher price in return for delaying payment, the transaction is valid.

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SECURITY 
The seller may ask the buyer to furnish security for the deferred payment. The buyer may sign a promissory note or a bill of exchange, but the note or bill cannot be sold to a third party at a different price than its face value.

[Promissory note is a legal document that says the borrower promises to repay to the lender a certain amount of money in a certain time frame.]
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EARLY OR LATE PAYMENT (after the due date is decided)
Once the deferred price and due date have been fixed, and then if the buyer pays before or after that due date, then in such cases, the seller shall NOT increase or decrease the price based on the buyer’s payment behavior:
•    The deferred price CANNOT be decreased for early payment (before the due date)
•    The deferred price CANNOT be increased for late payment (after the due date). However, to deter late payment scenarios, the scholars have suggested a method in which the contract has a penalty clause wherein, if the payment is delayed, the buyer promises to donate a certain amount to charity. This charity money does not go to the seller, but goes to a fund for good causes. This arrangement; though it does not compensate the seller for the delay, may serve as a strong deterrent for the buyer to pay promptly.

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PAYMENT IN INSTALLMENTS
It is permissible to pay later in instalments.

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Narrated `Urwa: Aisha said, "Barira came to me and said, 'I have agreed with my masters to pay them nine Uqiyas (of gold) (in installments) one Uqiya per year;….
Sahih al-Bukhari 2168

 

It is not permissible in the case of payment by instalments, to state interest rates as a separate item based on the length of time taken to repay, regardless of whether the two parties agree on the rate of interest or it is based on the current rate.
 

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IN CASE OF DELAY IN PAYING INSTALLMENTS
It is permissible, according to Islam, for the seller who is selling by instalments to stipulate those payments be brought forward from the due dates if the borrower delays making some payments, so long as the borrower has agreed to this condition at the time of the contract.