Leasing a car through ijara in the United Kingdom

What ijara means for a car

Ijara is a lease of an asset in exchange for rent. The lessor owns the car and carries ownership risk, while the driver pays for its use. Because rent is charged for a real asset rather than for money lent, the return is not considered riba by Sharia scholars.

Two variants exist. Plain ijara returns the car to the owner when the lease ends, like conventional contract hire. Ijara wa iqtina, also called ijara muntahia bittamleek, adds a promise to transfer ownership at the end, usually through a separate sale or gift.

Why the transfer must be a separate contract

Scholars require the lease and the final sale to be distinct agreements, so that the driver is not bound by two sales in one contract. UK providers therefore sign a lease first and a sale and transfer agreement at the end, once all rentals are paid.

How UK law classifies the arrangement

Ayan, the main dedicated provider, states that UK law treats its ijara wa iqtina contract as a form of hire purchase. Consumer agreements of this kind are regulated by the FCA and governed by the Consumer Credit Act 1974, including rights to settle early and to terminate.

Termination rights under the 1974 Act

Section 99 of the Consumer Credit Act lets hire purchase customers end the agreement once half the total price is paid. Section 101 gives limited termination rights for pure hire agreements. Drivers should ask which category their contract falls into before signing.

Who offers Islamic car leasing in 2026?

Ayan Capital Ltd, authorised by the FCA under reference 1022208, buys vehicles from any UK dealer and leases them on an ijara wa iqtina basis. Its Sharia supervisory board includes scholars from Alhamd Shariah Advisory and Amanah Advisors, and it serves England, Scotland and Wales.

Ayan focuses strongly on private hire, PCO and black cab drivers, with weekly payments and electric vehicles suited to Transport for London licensing. Credit brokers such as Kandoo also introduce customers to Sharia-compliant vehicle finance from selected FCA-authorised lenders.

Is ordinary contract hire an option?

Some scholars consider personal contract hire acceptable because it is a rental with no ownership transfer and no interest charged to the driver. Others object to interest-based funding behind the lessor and to late-payment charges. Comparison sites such as Leasing.com list these conventional deals.

Limits of the market

Supply is thin compared with conventional motor finance. Ayan does not lend in Northern Ireland, few dealers offer ijara at the point of sale, and representative rates are higher than subsidised manufacturer deals. Drivers with poor credit histories will find fewer options than in conventional finance.

Insurance and maintenance duties

Even though the provider owns the car, the driver must keep it fully insured and maintained throughout the agreement. Comprehensive cover is normally required, and the driver handles servicing, tyres, road tax and MOT unless a maintenance package is included in the rentals.

Leasing a car step by step

1. Check eligibility and gather identity, address, income and driving licence documents.
2. Choose the vehicle and agree the price with any UK dealer.
3. Request an ijara quote showing rentals, fees and an APR-equivalent figure for comparison.
4. Pass affordability and credit checks carried out by the provider.
5. Let the provider buy the car directly from the dealer.
6. Sign the lease, arrange comprehensive insurance and collect the car.
7. Pay rentals on schedule, then sign the sale and transfer agreement to take ownership.

Private hire drivers should also check that the vehicle meets Transport for London or local council licensing rules before committing. Ayan states that approved drivers can obtain a car worth up to £50,000 within days of approval.

Costs and documents

Common reasons for refusal

• Income that cannot be evidenced, especially for new self-employed drivers.
• Recent missed payments or county court judgments on the credit file.
• A vehicle that does not meet the provider’s age or mileage criteria.
• Living in Northern Ireland, which Ayan does not serve.
• No valid licence for the intended private hire or taxi use.

Can a leased car be returned early?

Yes, but on terms set by the contract and the Consumer Credit Act. Under a hire purchase style agreement, the driver may return the car once half the total amount has been paid. Earlier exits usually require paying the settlement figure.

Is the APR shown a sign of interest?

No. FCA rules require consumer finance providers to show a comparable cost figure. Ayan describes its APR-equivalent as a comparison tool, while the actual charge is rent for the vehicle, fixed at the start of the agreement.

What happens if the car is written off?

The insurer pays out to the owner, the finance provider, and the payout normally settles the agreement. If the insurance payout is below the outstanding amount, the driver may owe the difference, which some drivers cover with gap insurance.

Does the car finance redress scheme cover ijara deals?

The FCA scheme covers regulated motor finance taken out between April 2007 and November 2024 where commission arrangements were not disclosed. Parts of the scheme are suspended pending a court hearing, and complaints should go first to the finance provider, free of charge.

Can businesses lease vehicles this way?

Yes. Ayan finances business vehicles and fleet expansion for small companies, and business agreements may fall outside consumer credit protections. Companies should check VAT recovery and capital allowance treatment with an accountant before choosing between leasing and purchase.