Murabaha Explained: What a Cost-Plus Deferred Sale Contains

Murabaha is a cost-plus deferred sale. The word describes a sale, not a loan, and the contract is built in stages that each have their own paperwork. Knowing the stages tells you what should be in front of you before you sign.

The Three Stages

First comes the promise stage, where you agree that you want the car and the financier agrees to acquire it. Next is the acquisition stage, where the financier buys the car from the seller and actually takes possession of it, at least constructively. Last is the execution stage, where the financier sells the car to you at cost plus a disclosed profit, with payment deferred over the term.

The second stage is the one buyers should watch. If the financier never acquires the car, the transaction is not a sale of anything, and what you signed is a promise to lend money rather than a purchase.

What Has to Be Disclosed

• The cost the financier paid for the car, stated as a number.
• The profit added on top, also stated as a number rather than only as a rate.
• One total deferred sale price, fixed at signing.
• The installment schedule and the payment dates.

On the U.S. paperwork this usually appears as a purchase agreement alongside a security agreement and a payment schedule. Ask for the sale price as a single figure and compare it against the cash price on the same car. The difference is what the financing costs you, in dollars.

The Two Clauses Worth Reading Twice

The early-payoff clause governs Ibra, the rebate for settling early. In some contracts it is promised and formula-based, and in others it is left to the financier's discretion. Either is possible, but you should know which one you signed. The late-payment clause governs any charge for delay, and some contracts route that money to charity instead of to the financier.

What a Murabaha Is Not

It is not a lease: you own the car from the second sale onward. It is not a conventional loan with the word swapped: the price is a fixed sale figure rather than a charge accruing over time. And it is not immune to a bad deal. A Murabaha on an inflated out-the-door price is still an inflated out-the-door price, which is why the rest of this site starts with the number before it starts with the contract. Price it first with the out-the-door calculator.

Carummah explains how contracts work and does not issue religious rulings, so ask a qualified scholar.