No Interest Car Finance for Muslims

Halal car finance in plain English

The UK market for ethical, interest-free car finance is accelerating. Islamic banks and specialist providers have expanded their presence, yet Islamic banking still accounts for around 0.1% of total UK banking assets. That mismatch matters because research shows 82% of UK Muslims actively seek Sharia-compliant products, while almost a third of non-Muslim consumers also express interest in ethical, no-interest options. In short - demand is outpacing supply.

Investor confidence is catching up. A UK halal vehicle finance provider recently secured up to £25 million in Sharia-compliant funding to scale operations, targeting financing volumes of £25 million this year and £100 million by 2026. With a focus on private hire drivers and low-emission vehicles, it applies Ijara wa Iqtina - a lease-to-own model with no interest, where you pay agreed rentals and have the option to acquire the car at the end.

This is happening alongside rapid sector growth. UK Islamic bank assets rose 26% in 2023 to reach billions in value, with further growth through 2024. Analysts anticipate a medium-term climb that reflects deepening consumer preference. At the same time, the broader UK used car finance market is worth over £20 billion annually, creating the conditions for halal providers to become mainstream choices.

The regulatory backdrop is also strengthening. In October 2025, a halal finance firm obtained full FCA authorisation for regulated consumer credit, opening the door to retail buyers seeking no-interest vehicle finance. Early indications show strong demand, with seven-figure monthly issuance and a growing pipeline.

What does this mean for you? If you want to avoid interest and align your purchase with Islamic principles, there are viable routes. Instead of paying interest, you agree fixed rental payments or profit rates embedded in Sharia structures, with full transparency on total cost. You can choose low-emission models suitable for city driving, or vehicles tailored to private hire work. New offerings even extend to 0% instalment plans for home improvements and car repairs, helping you manage life’s bigger expenses without interest.

Understanding APR is only part of the story - the structure matters as much as the rate.

The right option balances faith, affordability, and practicality. Below, we set out who this suits, how the models work, the costs to weigh, and the steps to take next - so you can move forward with clarity and confidence.

Is this a good fit for you?

If you prioritise Sharia compliance and wish to avoid interest entirely, no-interest car finance can align your values with your budget. It also suits private hire drivers who value predictable monthly costs and the ability to choose low-emission vehicles for city work. Families seeking transparent, fixed payments appreciate that rental obligations are agreed upfront, and the purchase option is clearly defined.

Ethical finance seekers who are not Muslim may also find these models attractive. A growing number of UK consumers favour finance without compounding interest, preferring simplicity and fairness in how costs are set. If you have a regular income, need reliable transport, and want a clear path to ownership without interest, this route is designed to make that attainable.

Your main ways to finance the car

1. Ijara wa Iqtina - lease-to-own with fixed rentals and purchase option.

2. Murabaha - cost-plus sale with a transparent, pre-agreed profit.

3. Diminishing Musharakah - shared ownership where your equity increases over time.

4. Halal PCP-style structures - tailored balloons with no interest, Sharia oversight.

5. 0% instalments for repairs - cover maintenance with interest-free monthly payments.

What it could mean for your wallet and risk profile

Who qualifies and what lenders look for

Eligibility typically revolves around affordability and stability, not just faith. Expect checks on income, outgoings, and UK residency, alongside credit history. Sharia-compliant providers will assess whether the monthly rentals or profit-based repayments are sustainable after everyday bills. For private hire drivers, lenders may ask for proof of bookings or platform earnings. Low-emission or ULEZ-compliant cars can be prioritised where the provider targets greener fleets.

You do not need a perfect credit score. Some halal lenders serve near-prime customers if the budget case is sound. A UK bank account, proof of address, and valid driving licence are standard. Where a digital-first journey applies, identity and anti-fraud checks are completed online. As a broker, Kandoo works with a range of lenders, including ethical and Sharia-aware partners, to match you with the right structure and term. If you are self-employed, gather recent bank statements and tax summaries to evidence income. The clearer your paperwork, the smoother the decision.

From application to keys in hand - the simple route

1. Check your monthly budget and shortlist suitable cars.

2. Choose a Sharia-compliant structure that fits usage.

3. Gather ID, proof of address, income evidence, licence.

4. Get a broker quote - compare offers and total cost.

5. Complete affordability checks and digital verification steps.

6. Review terms - rentals, purchase option, mileage limits.

7. Sign documents, pay any initial amount if required.

8. Collect your car - keep records for future buyout.

Quick benefits and trade-offs at a glance

Clarity beats complexity - know your total cost before you sign.

Key checks before you proceed

The most important step is to review the full payment schedule. Confirm your monthly rentals, the optional purchase figure, and any fees for early settlement or excess mileage. Ensure the Sharia oversight is explicit - look for structures such as Ijara wa Iqtina or Murabaha, with clear documentation on ownership transfer. If you are a private hire driver, check that insurance, servicing, tyres, and ULEZ charges are budgeted for. For low-emission models, verify realistic range and charging access near your routes.

Consider the total cost of motoring - not just finance. An interest-free structure can still be poor value if the car is overpriced or fuel costs are high. Finally, preserve flexibility. If your circumstances change, you need to know how to pause, restructure, or settle. A quick call with a broker can save you time and money.

Alternative paths if halal car finance is not right today

1. Save and buy with cash at a negotiated discount.

2. Short-term leasing while you build a deposit buffer.

3. Credit union products with ethical mandates.

4. Salary sacrifice for EVs where your employer offers it.

5. Public transport and car clubs while you compare options.

Frequently asked questions

Q: Is no-interest the same as zero cost? A: No. Sharia-compliant finance replaces interest with agreed rentals or a known profit. You avoid interest, but still pay for the use or purchase of the car.

Q: How does Ijara wa Iqtina differ from standard leasing? A: With Ijara wa Iqtina, the lease is paired with a clear route to ownership. Rentals are agreed upfront, and you can acquire the vehicle at the end under Sharia principles.

Q: Can I get approved with a thin credit file? A: Possibly. Lenders focus on affordability and stability. Provide bank statements, income proofs, and accurate expenditure details to strengthen your case.

Q: Are low-emission cars easier to finance halal? A: Some providers prioritise low-emission and ULEZ-compliant vehicles, especially for private hire drivers, because they reduce running costs and support sustainability goals.

Q: What signals that the market is trustworthy? A: Rapid asset growth in UK Islamic banking, new funding lines into halal vehicle finance, and FCA authorisation for retail credit all point to improving choice and oversight.

Q: Are there options for maintenance and repairs without interest? A: Yes. Some providers now offer 0% instalment plans over 12 months for car repairs and even home projects, helping you spread costs without interest.

How Kandoo can help you move forward

Kandoo is a UK-based retail finance broker that partners with trusted lenders, including ethical and Sharia-aware providers. We help you compare halal structures, understand total cost, and apply with confidence. Tell us your budget and vehicle goals - we will do the legwork and aim to secure a fair, interest-free arrangement that fits your life.

Important information

This article is for general information only and is not financial advice. Finance is subject to status, affordability checks, and terms set by the lender. Always read documents carefully and consider independent advice if unsure.