Alfalah Islamic Auto Finance is simply a rental agreement under which the car is given to the customer on rent for a period agreed at the time of the contract. The customer is required to deposit an initial amount (security deposit) with the Bank. Upon completion of the lease period the customer has two options either to return the car and take away the security deposit or take ownership of the car against his security deposit or any other agreed amount via separate sale transaction.
FAQ’s – Alfalah Islamic Auto Finance
- No upfront Takaful (Islamic concept of insurance) charges
- No upfront registration charges
- No advance rental
- No rental before the delivery of the vehicle
- Competitive rental
- Quick processing
Alfalah Islamic Auto Finance works on the principles of Ijarah and complies with the requirement of a valid Ijarah transaction. In this the asset remains in the ownership and risk of the Bank, and the customer only pays rent for the use of the asset; just like house rent.The product features and agreements are carefully designed as per the rules of Ijarah and have been reviewed and approved by Bank Alfalah Islamic’s Shari’ah Board.
| Features | Alfalah Islamic Auto Finance | Conventional Leasing |
|---|---|---|
| Ownership and risk | The asset remains in the ownership of the Bank throughout transaction tenure.Risks and rewards of ownership lie with the owner i.e. any loss to the asset beyond the control and absence of any negligence of the lessee should be borne by the lessor. | Under conventional leasing, although ownership remains with the lessor but all risks of ownership are parked with the customer (lessee) as well. |
| Rentals | The rental amount decided at the time of the agreement cannot fluctuate unilaterally at the sole discretion of the Bank | Generally in conventional leasing the financial institute can at its sole discretion can increase transaction rates and rental.A clause for above is explicitly mentioned in the conventional leasing contracts. |
| Expenses | Bank/Lessor All expenses relating to the ownership of the asset i.e. Takaful, accidental damage (without negligence of lessee) etc. will be borne by the lessor/Bank.Lessee All actual operating/overhead expenses related to running the asset will be borne by the lessee.Moreover, expenses for damage to the asset by lessee’s negligence are also borne by the customer | In conventional leasing all expenses relating to the corpus of the asset i.e. insurance, accidental repairs, actual operating/overhead etc. are borne by the lessee. |
| Late payment charges | Lessee may be asked to promise that, if he/she fails to pay rent on its due date, he will pay certain amount to a charity account.This amount cannot be taken in Bank’s income and its nature is of charity not of Riba. Charity is charged only to discipline the customers | In most contemporary financial leases, an extra monetary amount is charged if rent payment is not paid on time and is taken in the income of the institute/bank.This extra amount is the considered as riba (interest) which is impermissible in terms of Shari’ah . |
| Asset theft/Damage | In case of car theft or severe damage (that is the asset becomes unusable), rentals are stopped because rentals are obtained for the use of assets. | Monthly payments are not stopped in any case of theft or sever damage to the asset. |
| Rentals/Monthly payments | Rentals start after one month (approx.) of the delivery of an asset. | Monthly payments start from the booking of an asset irrespective asset is delivered to the customer or not. |
| At the end | Upon completion of the Ijarah tenure, the customer can purchase the car from Bank Alfalah Islamic via separate sale deed or can return the car to the bank and take back his security deposit. | Under conventional leasing the vehicle is automatically transferred in the name of the customer as part of the contract. |
At present this option is not available. All late payment charges are credited to a Charity Account maintained at the head office and is directly supervised by the Shari’ah Board of the Bank so you can be assured that your charity is used for the right cause.
Balloons payments are not allowed.
Bank Alfalah Islamic being the owner of the car is responsible for Takaful of the car and for payment of Takaful premium. In this regard, Bank Alfalah insures car from reputable Takaful companies using the Islamic mode of Insurance (Takaful) and pays Takaful contribution (premium) as part of its ownership expense.
The word Takaful is derived from the Arabic verb Kafala, which means to guarantee; to help; to take care of one’s needs.
Takaful is a system of Islamic insurance based on the principle of Ta’awun (mutual assistance) and Waqf. It is a pact among a group of members who agree to jointly help themselves against loss or damage to any one of them as defined in the pact.
Takaful is operated on the basis of shared responsibility, brotherhood, solidarity and mutual cooperation or assistance, which provides for mutual financial security and assistance to safeguard participants against a defined risk.
In Ijarah transactions, the customer pays the rent for the use of the asset and in cases of theft or total loss the rentals will be stopped immediately. The Bank (Lessor) in such cases can only take the proportionate rent for the actual number of days for which the asset was used; unlike the conventional leasing practice where the rental payments continue even after theft or total loss. The customer is required to immediately (or as soon as possible) inform the Bank about the incident.
Vehicle, under the Ijarah facility, may be purchased during the Ijarah tenure by the customer, utilising/executing the ‘Undertaking to Purchase’ against the respective month and latest outstanding rentals. Customer would be required to settle all outstanding rentals and buyout price which may contain termination price, cheque return charges and charity amount due to delay in payment of rentals; prior to taking delivery of the vehicle.
Following a major accident or theft of the vehicle(s), the Customer is required to submit a written report to the Bank, informing about the incident. The report should be received by the Bank through proper mailing channels. Customer is also required to provide the documents required by the Takaful Company along with the original FIR.
Any act or failure to act, with regards to the Ijarah agreement executed between the Bank and the Customer, shall be treated as negligence on my (customer’s) part. For instance;
- compliance with the Federal, Provincial, Municipal and local laws,
- vehicle to be operated as per the Takaful (Islamic insurance) policy covering the vehicle,
- vehicle operated by suitably trained personnel,
- vehicle will not be driven by a person without a valid license, etc.
In case of termination of Ijarah facility due to theft/major accident, the security deposit will be refunded to the customer after netting off the following amounts:
- Outstanding rentals due till the time of incident. Bank will charge the rental for all those days when asset was in the use of Customer up to the incident.
- Any shortfall in Takaful claim due to negligence of the Customer such as late intimation to Bank and the Takaful/ company, non-provision of required document(s), violation of ljarah agreement such as sub-letting the vehicle(s) etc.
- Cheque return charges
- Charity amount due to delay in payment of rentals
- Any other amount due from the Customer
