Charging Interest

The Aish Rabbi Replies

The Torah states that it is forbidden to charge a fellow Jew interest on a loan (Leviticus 25:37).

Maimonides comments on this passage that the highest form of charity is to prevent a person from becoming poor - e.g. by offering a loan or employment, investing in his business, or any other form of assistance that will avoid poverty.

Interest is forbidden because we are obligated to help out others when in need. If someone is in dire need for money, in order to sustain himself and his family, and he refuses to accept charity, we should lend him the money he needs, without him worrying about the interest ruining his future.

"Interest" is any time a person gets back more than they loaned, whether it was pre-arranged or not. Not only is it forbidden for the borrower to give the lender back more money than what was loaned, but he must not give anything extra as a result of the loan.

What about business loans?

Imagine a situation where someone wants to do business and is need of a financer. He can make a business deal whereby the full amount of the loan is not guaranteed to be paid back. It is a risk the lender takes, like any other business deal. The borrower is just an agent to do business for the lender (for whatever share they agreed upon). In such a case, a special contract is drawn up called a "Shtar Iska." A copy of this text can be found in the Kitzur Shulchan Aruch, chapter 66. (see Shulchan Aruch - Y.D. 167)

A Shtar Iska is displayed in most banks in Israel.

In any case, it is permitted to borrow and/or lend from a non-Jew with interest, which is why many observant Jews prefer using banks that are owned by non-Jews.

There are also rabbinic authorities who say there is no prohibition of taking/giving interest from a corporation, only from individuals. Some people rely on this in case of great necessary.

Since the laws of "interest" in the Torah are very complex, in any actual case you should consult with your local rabbi.