Are Penalty Clauses in Contracts Permissible?
Penalty clauses in financial contracts are permissible, apart from contracts in which the original commitment is in the form of credit (debt). It is not permissible, for example, to stipulate that the one who buys goods by instalment must pay something additional to the price if he delays payment, because this additional cost is in addition to the debt he owes, and that is Riba.
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