Tuesday, July 1, 2008

Halocho #112 - 0% interest on loans

The Torah prohibits charging interest and paying interest to fellow Jews. The Torah allows charging interest and paying interest to non-Jews.

  • A person who lends money to a Jew and charges interest, has transgressed six Torah commandments and - if he doesn't repent - will not awaken at Techiyat Hameitim - when the dead will be revived at the End of Days.
  • The person who borrows the money transgresses three Torah commandments.
  • The scribe, witnesses, co-signer and middle-man all transgress one Torah commandment.
In most cases, a person who received interest from a loan needs to return it. Even if the borrower - on his own accord - returns more than he borrowed or adds a gift, it is considered interest on the loan and the lender is not allowed to accept it. Even non-monetary gain from a debtor is forbidden. For example:
  • The creditor may not ask the debtor to inform him when somebody has arrived, unless he used to do this before giving him the loan.
  • The debtor may not go out of his way to greet the creditor, unless he always used to do so.
  • The debtor may not patronize the creditor's business, unless he used to do so before getting the loan.

When doing a business deal with a fellow Jew, one needs to use a Heter Iska - the subject of a future posting.

Source: Kitzur Shulchan Aruch 65:1, 2, 4, 5, 9, 10

I discovered the following two useful sites:


  1. What is a Heter Iska (future posting)? What does that mean?

  2. A Heter Iska is a legal document that 2 people write up and sign in order to become business partners.

    This way when one of them loans the other money, they are entering into a joint business venture, and the gain isn't interest on a loan (which is forbidden) but it's profit from a business which they both own.

    But it's way more complex than that, and only a Rabbi who has studied this field (and some local law) can set one up properly.

    - Danny

  3. Can you have the person pay interest that the bank is charging you?
    Eg. You give him a loan from your Home Equity line (not from your personal funds) So you borrow 10,000 at 6% and ask him to repay the same. (You do this to save him so he wont have to pay 29% on his credit card debts)
    Please let me know. Thanks!

  4. > Can you have the person pay interest that the bank is charging you?

    Probably not.

    Essentially you're lending him money and he needs to pay you back more than he borrowed from you. Classic case of charging interest, even though you're not making any money off it.

    (Even though you're only acting as a "pipeline", however if you default on the loan, the bank won't care that it's really your friend's loan - so you see that you are borrowing from the bank, and your friend is borrowing from you.)

    You should discuss this with your Local Orthodox Rabbi who could maybe solve it with a Heter Iska; by making you business partners for this deal.

    - Danny; not an ordained Rabbi