Chapter 65 : Laws of Interest

Preface

The Torah writes: "When you lend money to my people, to the poor among you, do not press him for payment, do not take interest payment from him" (Ex. 22:24).

The Torah obligates us to lend money to one less fortunate than we, but, at the same time, forbids us to derive benefit from making this loan. Any benefit derived thereof is called ribis — interest.

There are two major categories of ribis:

1) Ribis deoraisa, i.e. interest that is Scripturally prohibited. The classic case is when the lender stipulates at the time of the loan that the money is being lent with the condition that it be paid back with a set rate of interest. It makes no difference how high or how low the rate may be; in either case, it is ribis deoraisa and the lender must return the interest payment to the borrower. This holds true even where the borrower willingly agreed to the interest payment.

2) Ribis derabanan, i.e. interest that is Rabbinically prohibited, such as a) sa'ah besa'ah (see para. 11); b) avak ribis, i.e. "a shade of ribis." The Torah prohibited only interest charged for a loan. The Rabbis added a prohibition on interest charged for a purchase; c) ribis mukdemes, i.e. "pre-loan" ribis. The borrower sends money or gifts to the lender so that he will lend him money at a later date; d) ribis me'ucheres, i.e. "post-loan" ribis. The lender did not set interest payments at the time of the loan, but the borrower paid interest at a later date. In cases of ribis derabanan, the Bais Din [Court] does not have the power to force the lender to return the interest collected, but it is, nevertheless, preferable in some cases that he do so on his own.

The laws of ribis are complex and this chapter will only touch some of the fundamentals of this important subject. It is, therefore, extremely advisable that when a question of ribis arises, a competent rabbi, well-versed in these laws, should be consulted.

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§1

It being the nature of man to desire and lust after money, and it being more likely for man to transgress the prohibition of interest than other prohibitions concerning money, because where robbery and fraud and the like [are concerned], the victim usually protects himself against robbery or fraud. Also, one who wants to rob or defraud another, will often be inhibited because of shame or because of fear. This is not so concerning interest, for the borrower willingly pays and is happy that he has found a place to borrow even with interest. The lender, too, thinks to himself that he is doing a great favor to the borrower by enabling him to profit with this money, many times more than the interest. It is, therefore, very easy for the person to be seduced, Heaven forbid, by his evil inclination to transgress this prohibition. Therefore, the Torah was very stringent with this prohibition. And many prohihitary laws are said concerning it. The lender transgresses six prohibitory laws, and will not be included in the resurrection of the dead, for it is said: "He gave money [in return] for interest and he accepted interest, he shall not live." The borrower transgresses three prohibitory laws. The scribe, the witnesses and the co-signer each transgress one prohibitory law. [This applies] also [to] the broker who brought them together or if he was of help to one of them, for instance, directing the borrower to one from whom he could borrow, or if he directed the lender to one to whom he could lend, he, too, transgresses one prohibitory law.

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§2

One who failed [to observe this prohibition] and collected interest, is obligated to return it (except where "pre-loan" interest and "after-loan" interest [are concerned] which are discussed later in paragraph 6).

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§3

Even if the lender did not stipulate [ribis] with the borrower at the time of the loan, but, rather, lent him [money] without charge until a specified time, or where he sold him merchandise on credit until a specified time, or where there is an obligation of payment in any other situation, for whatever reason, and when the time for payment arrives he agrees to some additional payment in order to extend the due date, this too is considered ribis.

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§4

Even if the borrower voluntarily makes an additional payment at the time the loan is repaid, which was never stipulated and he (the borrower) does not state that he is giving it to him as interest, [this] too is prohibited.

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§5

Even if the borrower tells him at the time of the ribis payment that he is giving it to him as a gift, it is also prohibited to accept it from him. But if he already accepted the interest from him and then the lender repents and wants to return it to the borrower, and he the (borrower) waives it to him, [then] he is permitted [to keep the interest].

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§6

It is prohibited to pre-pay the ribis or delay it [until after the payment of the loan]. For example, Reuven desired to borrow money from Shimon, and sent him a gift in advance, explaining [that he did so] in order to obtain the loan, or if it was a substantial gift, even though nothing was said, [nevertheless,] it is as if it were explicitly stated that it was for the purpose of obtaining the loan. This constitutes ribis mukdemes. If he [Reuven] borrowed money from him [Shimon] and repaid the money and then sent him a gift in consideration of the fact that [Shimon's] money was tied up by him during the loan period, this is ribis me'ucheres.

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§7

If one lends money to his friend for a specified time, [with the understanding that] [the borrower] reciprocate and lend him at another time, [either] a greater amount for the same period of time or an equivalent amount for a longer period of time, this is absolute ribis. [But,] if he lends him money with the condition [that the borrower] lend him at another time an equivalent amount of money for the same period of time, some say that this, too, is prohibited, and others say that it is permitted. It is preferable to adhere to the stringent opinion. However, if no stipulation was made, but he voluntarily lends him money at another time, despite the fact that he is doing this only because the other previously granted him a loan, in this instance one may be lenient.

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§8

The lender must take care not to derive any benefit from the borrower without his permission as long as his money is in the borrower's hands. [This applies] even if it is something that he would have done for him had he not lent him [money], because since he benefits without permission, he (the lender) seems to be assuming that because his money is in (the borrower's) hands, (the borrower) will forgive him. But, when he benefits from him with his permission [then], it is permitted, provided it is something that he would have done for him even had he not lent him money. Another provision is that it is not widely publicized.

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§9

If it was not the usual practice of the borrower to initiate greetings to the lender on other occasions he may not initiate them [now]. [The borrower] may not honor him with any sort of honor in the synagogue or any other place if it was not his usual practice to do so on other occasions. So, too, other types of ribis of words are prohibited, for it is said "Interest of any thing which is interest." [The sages interpret this to include] that even verbal ribis is prohibited. The lender, likewise, is commanded regarding ribis devorim. For instance: If he says to the borrower, "Let me know whether so-and-so arrives from such-and-such place." Though he bothers him only to speak a few words, if he had not been accustomed to do so before this (i.e. the loan) and now because of the loan he bids him to do so, this constitutes ribis because [the borrower] is obligated to him. And if you ask: "Is it not written: 'The borrower is a servant to the lender?' [The answer is:] the verse refers only to a situation where there is a dispute between them and the lender says, "Let us go to the Supreme Court to adjudicate our dispute;" and the borrower says that the dispute be heard here; then the borrower is obligated to travel to where the lender wishes; whereas there is no obligation on the lender to travel to the Supreme Court located elsewhere, for it is said: "The borrower is a servant to the lender."

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§10

Even advantages that are not monetary may not be derived by the lender from the borrower; for instance: if the lender is a craftsman, and it is not usual for this borrower to give him work at other times, but now, in return for the loan, he wants to give him work. This is prohibited.

Preface to Paragraph 11

It was previously mentioned in the preface to this chapter that ribis deoraisa applies where the lender and borrower, at the time of the loan, agree to a set amount of interest to be repaid. If the rate of interest is not set, or if at the time of the loan it is uncertain whether interest will actually be paid, then this constitutes ribis derabanan.

The following paragraph discusses one aspect of ribis derabanan.

Unlike money whose value, halachically, remains constant, the value of goods and services fluctuate. This creates a problem when lending goods and services, because at the time of payment, albeit the same quantity is returned, nevertheless, the value of the said goods may have increased thereby giving the lender a profit on his loan. This kind of ribis is known as sa'ah be'sa'ah, i.e. "a bushel for a bushel." The derivation of this name stems from the situation where a bushel of grain is lent with the stipulation that a bushel be repaid. Since the repaid bushel may increase in value, this constitutes ribis derabanan.

An exception to this prohibition: If the borrower of the goods has the identical goods in his possession at the time of the loan which can potentially be used as payment at the time of the loan.

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§11

You may not lend someone a sa'ah of grain [with the stipulation] that he repay a sa'ah of grain even if they are both of the same species, because there is the possibility that, in time, the price of the grain will increase and, consequently, he will be repaying [value] greater than what he borrowed. Rather, a money valuation should be set on the grain, so that if the price of the grain increases, he will pay you only the amount of money [at which the grain was originally valued]. However, if the borrower owns even a small amount of that kind [of grain], he may borrow many korim. Similarly, if that particular [grain] has a set price in the marketplace, he may borrow [sa'ah besa'ah], even though the borrower does not possess any [grain] of that kind. All of the above applies where the same species of grain [are involved], but where two different species [are involved]; for instance, lending a sa'ah of wheat for a sa'ah of millet is prohibited under any circumstances, even if their prices are the same and [the borrower] posesses millet. When [the loan is] an insignificant amount, where it is unusual to be concerned about higher or lower prices, [sa'ah besa'ah] it is permitted in all cases. Therefore, a woman is permitted to lend a loaf of bread to her friend.

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§12

One who lends money for a mortgage [whether it be] a house, a field, or a place in the synagogue, and the lender receives the benefits from the mortgage [then] this must be done by deduction; that is, he (the lender) must deduct a set amount per year from the loan which is then considered the rental that the lender is paying. Even if the actual rental value is greater than what they agreed to, [nevertheless,] it is permitted. However, the lender may not turn around and rent [the property] to the borrower himself. Concerning mortgages there are many additional laws and [therefore] nothing should be done [concerning mortgages] unless a Rabbinic authority is consulted.

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§13

An object that has a set price may not be sold at a higher price because the seller is willing to wait for payment. But, an object that has no set price, [then] even though, were he to give him the money now he would give it to him for less, and in return for waiting for the money, he charges him slightly more, nevertheless, it is permitted, provided he does not charge too much. (Chavos Da'as writes [that "too much"] is a sixth or more above the accepted price), for then it is obvious to everyone that it is [in return for] awaiting payment that he is charging more. And even if he charges only slightly more, but he explicitly states: "If you pay me immediately, then you can have it for ten but [if you want it] on credit, you must pay me eleven," [this is] prohibited. Similarly, if the buyer buys the goods at a higher price (in return for the seller waiting for payment) in order to sell it immediately at a loss, and to have ready cash available for a certain period of time, this, too, is prohibited.

Preface to Paragraphs 14 and 15

It is a common business practice to sell promissory notes at a discount of their face value. For example, a lender who is holding a one-hundred dollar note due in six months, is in a situation where he needs money immediately. He finds a buyer willing to buy the note - or the right to collect the money in six months — for ninety dollars. Although, what has, in effect, happened is that the buyer advanced the lender ninety dollars in return for collecting more in the future, yet no ribis is incurred because the money advanced is not considered a loan, but, rather, a bona fide sale where the buyer has bought the rights to "become the lender." It, therefore, follows that if it is stipulated that the seller retains all responsibilities for collecting the loan and if, for any reason, the borrower does not pay, the seller will be obligated to pay the buyer the one hundred dollars — in that case the ninety dollars paid is nothing but a loan with a promise that one hundred dollars will be repaid. Of course, this constitutes ribis.

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§14

One who has a promissory note against his friend, may sell it to another for less, even [before it is] due. The seller must write to the buyer, "I, hereby, sell you this note and you thereby obtain it and any mortgage [attached to it]." All responsibility [for collecting the monies] must rest with the buyer. Only responsibility that emanates from the seller, for example, selling a note that has been paid, etc. or any similar situation, may rest with the seller. Just as the note may be sold to a third-party at a discount, so, too, it may be sold also to the borrower himself.

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§15

The following scenario is permitted: For example, Reuven needs money [during the month of] Nissan, and goes to Shimon, and Shimon gives him a promissory note obligating himself to pay to Reuven one hundred gold coins in the month of Tishri. (In response, Reuven, gives such a promissory note to Shimon, that is obligating himself to pay him one hundred gold coins in Tishri, so that Shimon will be reassured). Reuven now goes and sells the promissory note that he has against Shimon to Levi, in Nissan for ninety gold coins. (Certainly this holds true [in a situation where] Shimon has a promissory note against Yehudah whose due date is sometime in the future. He (Shimon) may sell it to Reuven on credit until the [due] date and Reuven will give him a promissory note on this [transaction]. Now, Reuven may sell this promissory note for as much as he can get.) However, if Reuven were to write a promissory note against himself to sell to Shimon [at a discount] even [if the money is delivered] through an intermediary, it is prohibited.

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§16

It is prohibited to buy grain or any other item by paying money in advance while the grain will be delivered at a future date, because it is possible that in the interim the grain price will increase by the time the delivery is made, resulting in the buyer getting more than [the value of] his money, because he advanced the money. However, if the seller now has in his possession all the grain that he is selling, though he will not deliver it to the buyer until a later date, it is, nevertheless, permitted, because a man may sell whatever he possesses at a very reduced price if he sees fit to do so. [This applies] even when the grain is not yet completely ready but still needs one or two processes [for its completion]. Regarding the transaction, it is considered completed and is permitted. If, however, it lacks three processes it is prohibited. (See following chapter for a permissible procedure for advancing money for goods).

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§17

If the market price for grain has been set, one may buy at the market price by advancing money, though the seller does not possess any [grain]; for, even if the price of grain increases afterwards, the buyer derives no profit from his advanced payment, since he could have bought the grain then with his money at the current price. Since the transaction was made according to halakhah, even though there was an increase in the price of grain at the time of payment and the seller does not wish to deliver the grain that was agreed upon, the buyer is permitted to assess substitute goods to be delivered [at a later date]; or the seller must give him cash value at the present price of the grain. (See Kuntres Sha'ar Dei'ah at the end of the Seifer Sha'ar Mishpat Chapter 175, paragraph 2 which disagrees with what is written in Shulchan Aruch of the Tanya, paragraph 28).

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§18

One who has merchandise that sells here at a low price and elsewhere for a higher price, and his friend says to him: "Give me this merchandise and I will transport it to the place where the higher price [can be obtained]. I will sell it there and use the money for my own needs until such and such a time, and I will repay you according to what it sells for there, minus the expenses incurred [in transporting and selling] the merchandise". If the risk in transit [for the merchandise] was taken by the buyer, it is prohibited. But, if the responsibility [remains] with the seller, it is permitted, provided that he compensates the buyer with something for his bother.

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§19

One may lend his friend one hundred dinars with which to buy merchandise at theyerid, and when they return home the borrower may give him one hundred and twenty dinars for it, provided that the lender takes delivery of the merchandise and transports it home. Since the risk of transit on the lender, it is considered as though the lender has a share in the profit of the merchandise, since he accepted the responsibility for it.

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§20

[If] Reuven is traveling to a place where merchandise can be purchased cheaply, Shimon is permitted to tell him: bring merchandise from there and I will give you so much profit; provided that responsibility for the merchandise [rests] with Reuven until delivery to Shimon.

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§21

It is permitted to increase the rental of real estate. How so? One rented a property to another and he (the owner) said to him before he (the renter) took possession: "If you pay me the rent in advance, you can have it for ten guldens per year. But, if you pay me monthly, then you must pay me one gulden per month." This is permitted. The reason for this is because, halachically, rent is not payable until the end [of the rental period]. Therefore, when he takes a gulden each month, which add up to twelve gulden, it is not compensation for awaiting payment, because there is no obligation to pre-pay. Therefore saying to him: "If you pay in advance, you can have it for ten," is considered a waiver of the two gulden in return for his pre-paying before payment becomes due and this is permitted.

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§22

Only where real-estate rental [is concerned], is it permitted to increase [payment] in this manner because the property is acquired immediately. But, to profit from the wages of a worker in this manner is prohibited, for example, if he hires a person to do a job for him sometime in the future and he pays his wage today before he begins the work, and in return for this (the pre-payment), he will do the work for him for less than usual compensation, this is prohibited. Since the worker is not obligated now, then the pre-payment is like a loan. But if the worker began the job immediately, even though he will not complete [the job] for many days to come, it is permitted to pay his wages in advance in return for his working more cheaply. Since he begins the work immediately, [the money] is considered wages and not a loan.

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§23

It is permitted to increase the dowries of bridegrooms. For example, if one set aside a dowry for his daughter and agreed with his son-in-law that for every year he leaves the dowry with him, he will give him so much profit, this is permitted; for this is considered only as an increase in the dowry. It is as if he had said to him: "I will give you a gift of so much at a certain time, and if I fail to give it to you by that time, I will add to it so much and so much," which is permitted. This applies only where they agreed to this immediately at the writing of the tena'im. Since until that time there was no obligation on him (the father in law), it is all considered one obligation. However, if at the writing of the tena'im he obligated himself unconditionally to a set dowry, and at the time of the wedding they want to arrange to give the groom something in return for extending the time [of payment], this is prohibited. This should be done in a permissible manner.

Preface to Paragraph 24

These laws are pertinent to the understanding of paragraph 24:

1. The Torah permits the borrowing from and lending to a gentile for interest. (The Sages, however, limited the collection of interest from a gentile to the amount necessary to earn a livelihood).
2. There are two kinds of areiv - co-signer:
   1. The lender must first approach the borrower to collect his debt. In the event that the borrower cannot pay, then and only then may the lender demand payment from the areiv. In this situation the original recipient of the money from the lender is considered the borrower, regardless who pays in the end.
   2. The lender retains the option to demand payment from either the areiv or the borrower, whomever he decides to approach first. If he collects from the areiv, then the areiv has the right to be reimbursed from the borrower. Here, the borrower is considered to have borrowed from the areiv. It is as if the areiv borrowed the money from the lender and then proceeded to lend that money to the borrower.

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§24

A Jew may borrow from a gentile with interest with another Jew as an areiv under the following conditions: the terms of the loan are such that the gentile must first demand payment from the borrower and only if it is impossible to collect from the borrower. can he demand from the areiv. But if the terms of the loan are such that the lender must first demand payment from the gentile, and only when he does not find [satisfaction] from the gentile borrower that he may collect from the areiv, [then] it is permissible. But if the terms of the loan are such that the lender can initially demand payment from the areiv, consequently, the areiv is like the borrower, and it is prohibited. However, if the Jew co-signs only for the principal and not for the interest, it is permitted. (Concerning a Jew who borrowed from a Jew and another Jew will be the areiv, and the borrower gives the areiv a fee for signing, the Turei Zahav and the Sifsei Kohein in Nekudos Hakesef are lenient. However, the opinion of the Chavas Daas is to be stringent.)

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§25

When a gentile says to a Jew: "Borrow money on interest for me from a Jew with this collateral," or even if he does not give him collateral but, only a promissory note, and the lender depends solely on the gentile's collateral or note, and the intermediary has no responsibility, it is permissible. And even if the Jew, the intermediary, delivers the interest payment to the lender, he may accept it, provided that the lender definitely understands that all the risk for the collateral and the money, whether when it is brought, or when it is returned, is entirely his own responsibility, and the intermediary has no responsibility whatsoever.

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§26

Similarly, a Jew who gave collateral or a promissory note to a fellow Jew to borrow money on interest for him from a gentile on the collateral or note; it is permitted, if the gentile relies solely on the collateral or the note, and the intermediary assumes no responsibility. Similarly, if at first a Jew lent [money] to a fellow Jew on collateral, and afterwards the borrower said to the lender: "Borrow money from a gentile on interest [using] this collateral and I will be obligated to pay [the gentile] the principal and the interest," if the gentile depends solely on the collateral, it is permitted.

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§27

If a Jew lent [money] to a gentile on collateral for a certain rate of interest per month, and then the Jew comes to his fellow [Jew] [and asks] that he lend him the [same amount of] money [originally lent to the gentile] for this collatera1,52 and that he should collect the interest [owed by the gentile] that will accumulate from now until the payment [of the loan], it is permitted.53 However, if the first Jew54 has already set the [total amount of] the principal and the interest for the entire duration of the loan,55 [then], the whole [amount] is considered as principal belonging to the Jew and it is prohibited to borrow with this collateral from his fellow Jew for interest, because it is as if he paid the ribis from his own pocket.56

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§28

If monies of a Jew are entrusted to a gentile and he (the gentile) lent them to [another) Jew in return for interest, if they remained the responsibility of the gentile, meaning that if the debt be forfeited he (the gentile) will be obligated to pay out of his own money, it is permitted.57 If, however, the gentile does not assume responsibility, it is prohibited.58 Therefore, in communities where there are banks or similar institutions where Jews own shares and Jews borrow from them on interest, even if the officers are gentiles, nevertheless, it seems to me that it is absolutely prohibited. It is, therefore, prohibited to deposit money there because any unrighteous Jew may borrow. Similarly, it is prohibited to borrow from them, because an unrighteous Jew may have deposited money there.

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§29

Partners who have to borrow from a gentile on interest should consult a competent Rabbinic authority how to go about this. (See Turei Zahav 170:3, Chavos Da as ibid: 1 and Shulchan Aruch of the Tanya Laws of Rihis: 64).

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§30

From an apostate Jew,60 it is prohibited to borrow on interest, and also lending him money on interest should be dealt with stringently.