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How does a reduction in contract value or declared profit, due to early or lump-sum payments work?
This is a Murabaha contract—based on the principle of a pre-declared and agreed-upon cost plus profit for the car purchase with deferred payments.
In a Murabaha-based auto finance contract, the profit and total amount payable are fixed and declared at the beginning of the agreement. This means that the full repayment amount remains unchanged, regardless of whether the borrower chooses to pay in instalments or in a lump sum before the end of the contract.
Since Murabaha is based on a pre-agreed cost-plus profit model, early payments do not reduce the total contract value but can reduce the finance term/period. This structure ensures clarity and compliance with Sharia principles, as the terms are honoured exactly as agreed upon at the outset.