What is the ruling on a contract that includes a penalty clause (late payment fine) considered usury, and is the contracting party sinful if he intends not to delay payment?
If the contract includes a penalty clause for late payment, then it is a forbidden contract and it is not permissible to enter into it, because it is an acknowledgment of and commitment to usury (riba). The Islamic Fiqh Academy has issued a resolution prohibiting late payment penalties, emphasizing that it is not permissible to oblige the debtor-buyer to pay any increase on the debt, whether by a prior condition or without one, because that is forbidden usury. Therefore, the seller must be advised and informed of the impermissibility of stipulating usury, and guided to take sufficient guarantees such as a guarantor, checks, and mortgaging the apartment.
Summary from Ftawy's records · added here
Reviewed by El Fatwa's sharia committee.
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