Short answer
The schools differ. In the Hanafi school, a down payment the seller keeps if the buyer backs out (bay' al-'urbun) is not allowed: the seller may keep only his actual loss. The Hanbali school allows it, and AAOIFI follows that view. For services like venues and hotels, a cancellation charge that matches real costs is accepted widely.
Bay' al-'urbun, where the buyer pays part of the price and forfeits it if he does not complete, is invalid because the seller takes money for nothing in return. A deposit is permissible as part payment or security, but if the deal falls through the seller must return it, minus any real loss he suffered.
Other madhhabs
- Hanbali
- Bay' al-'urbun is valid: the seller may keep the deposit if the buyer withdraws, based on a report from Umar ibn al-Khattab. Contemporary bodies such as AAOIFI adopt this view.
- Shafi'i
- Bay' al-'urbun is invalid, as in the Hanafi school.
- Maliki
- Bay' al-'urbun is invalid, as in the Hanafi school.
Explanation
Deposits are everywhere: booking a wedding hall, reserving a car, holding an apartment, ordering custom furniture. The question is whether the seller may keep the deposit if you change your mind.
The majority of jurists, including the Hanafi, Maliki and Shafi'i schools, hold that keeping a forfeited deposit means taking money for nothing in return, which falls under consuming wealth unjustly (4:29). The Hanbali school allows it, relying on a report that Umar's governor bought a house in Makkah on these terms. A hadith forbidding 'urbun is also narrated, but it is weak, so neither side rests its case on hadith alone.
How Hanafi muftis apply this today:
- A deposit as part payment or security is fine.
- If the buyer backs out, the seller may deduct his real, provable loss: a supplier's cancellation fee, a custom item made to order, a booking he turned away. The rest is returned.
- For rentals and services (venues, hotels, tradespeople), a cancellation charge agreed in advance that reflects real cost is treated as compensation, not a forfeit.
- If the seller cancels, the whole deposit is returned.
Because the Hanbali view is a recognised position adopted by AAOIFI and many Islamic banks, some contemporary scholars allow following it where it is common practice. If you are the seller, the cautious Hanafi course is to keep only your actual loss. For a specific contract, ask a mufti. See also What are the rules of business in Islam?
Ask a mufti about your own case. This answer explains the general ruling. When the details of your situation matter, as they do here, ask a qualified mufti and give them the full facts. Where to ask a scholar.
The evidence
Quran, Surah An-Nisaa 4:29
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوا۟ لَا تَأْكُلُوٓا۟ أَمْوَٰلَكُم بَيْنَكُم بِٱلْبَٰطِلِ إِلَّآ أَن تَكُونَ تِجَٰرَةً عَن تَرَاضٍۢ مِّنكُمْ ۚ وَلَا تَقْتُلُوٓا۟ أَنفُسَكُمْ ۚ إِنَّ ٱللَّهَ كَانَ بِكُمْ رَحِيمًۭا ﴿٢٩﴾
O you who have believed, do not consume one another's wealth unjustly but only [in lawful] business by mutual consent. And do not kill yourselves [or one another]. Indeed, Allah is to you ever Merciful.
Money kept for nothing in return is the majority's objection to a forfeited deposit.
Where the ruling is recorded
- Radd al-Muhtar (Ibn Abidin), Kitab al-Buyu', Bab al-Bay' al-Fasid. Bay' al-'urbun is a defective sale in the Hanafi school.
- al-Mughni (Ibn Qudama), Kitab al-Buyu', on bay' al-'urbun. Sets out the Hanbali view that it is valid and the report from Umar.
- AAOIFI Shariah Standards, Standard No. 5, Guarantees, on hamish jiddiyyah and 'urbun. Distinguishes a security deposit from 'urbun and allows 'urbun in sales.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.