Ruling on buying by hire-purchase
Question

                A contract has taken place regarding a commodity by renting it for sixty months; cheques are signed for these sixty months. The contract includes an advantage which is: if you pay the rent before the first day of every new month, it will be considered paid for 3 months. While if you pay after the first day of the month then it will be considered paid for only one month. After paying all the cheques off, this commodity will be considered yours. Is this contract legal Islamically? Is Riba involved in it at all?.
Praise be to Allah.Firstly: 
This contract is a form of 
    hire-purchase, concerning which a statement has been issued by the Islamic 
    Fiqh Council, stating that it is permissible if the rental contract is 
    accompanied by a separate contract giving the item to the renter so long as 
    he pays off all the rent, or a promise to give it to him after he has paid 
    all the rent. End quote. 
See the text of the 
    statement in full in Fiqh al-Nawaazil by Dr. Muhammad Hasan 
    al-Jeezaani (3/301). 
Giving something for free 
    subject to a condition has been ruled to be valid by some scholars. This is 
    the view favoured by Shaykh al-Islam Ibn Taymiyah (may Allaah have mercy on 
    him). But that is subject to the condition that the contract of giving is 
    separate from the rental contract, which states that the item is to be 
    rented for a certain amount of money, for a certain length of time, then 
    states that it is to be given subject to certain conditions,  such as 
    saying: The two parties agree that the first party (the company for example) 
    will give the second party (the customer) the item for free, if he pays off 
    the instalments that he owes. 
It is also essential that 
    the rental be a real rental and not just a cover for selling. So the one who 
    rents it out is liable for the rented item, not the one who is paying rental 
    for it.  Similarly the costs of basic maintenance other than running costs 
    are to be borne by the one who rents it out, not the one who is paying 
    rental for it, for the duration of the rental period. This is different from 
    a sale, when the liability and mantenance are all borne by the purchaser 
    because he takes possession of the item as soon as the contract is 
    completed. 
Secondly: 
What you say about “If 
    payment is made before the first day of every month, it will be considered 
    paid for 3 months, while if you pay after the first day of the month then it 
    will be considered paid for only one month” is known to the fuqaha’ as 
    “waiver with early payment”, i.e., if the borrower hastens to pay what he 
    owes, some of the debt will be waived for him. 
If you hasten to pay off 
    the debt ahead of time, two instalments of the amount you owe will be waived 
    for you. 
The fuqaha’ differed as to 
    whether this is valid or not. Most of them are of the view that it is not 
    permissible, because it is akin to riba. Ahmad and al-Shaafa’i, according to 
    one of their two views, were of the view that it is permissible, and this is 
    the most correct view. For a detailed discussion on that, please see the 
    answer to question no. 13945. 
In a statement issued by 
    the Islamic Fiqh Council it says: Waiving part of the debt that is not due 
    yet, whether it is at the request of the lender or the borrower, which comes 
    under the heading of “waiver with early payment”, is permissible according 
    to sharee’ah, and it does not come under the heading of forbidden riba so 
    long as it is not based on prior agreement. End quote from Majallat 
    Majma’ al-Fiqh (2/217). 
Hence it is known that this 
    form of waiver with early payment is not permissible, because there was 
    prior agreement to that at the time when the contract was drawn up. 
And Allaah knows best.