Offering a loan with collateral

Q. A friend wants to give me his vehicle for 1 Million Rand and he will pay me after one year. When he pays me back, I must return the vehicle to him. Is this correct?

A. The scenario in question can take one of two forms:

a. Party A (debtor) sells his vehicle to Party B (creditor) in lieu of R1 Million.

In that case, Party B is the owner of the vehicle and may do as he wishes with the vehicle. Party B is not bound to sell the vehicle back to Party A when Party A is ready to “pay back”.

b. Party A (debtor) takes a loan from Party B (creditor) in lieu of R1 Million and Party A leaves a vehicle as collateral (Rahn) by party B (creditor).

In that case, Party A remains the owner of the vehicle and Party B must return the vehicle when Party A repays the loan.

Accordingly, the nature of the transaction must be specified before the parties enter into a transaction. (Al-Ikhtiyaar 2/25 – Ahsanul Fataawa 6/507 – Jadeed Fiqhi Masaail 1251/252)

Allah Ta’ala Knows Best

Mufti Ismaeel Bassa