Permissibility of Late Payment Charges in Islamic Financing: Understanding Riba and Fair Practices #

Original question: If a monthly instalment payment is missed, is it permissible for us to raise the originally agreed-upon instalment price? Or can there be a late payment charge imposed?

There is a possibility of riba if the originally agreed-upon instalment price is raised as a penalty for late payment.

Therefore, the seller can only penalize the buyer for the exact additional cost incurred due to late payment.

In other words, the seller can only demand “out-of-pocket” cost from the buyer for any late payments.