Interest on Loans
1. It is in the nature of man to long for the acquisition of wealth. But of all the illegal commercial transactions, usury is the most common. In robbery or fraud, the victim usually tries to defend himself, and the perpetrator is often inhibited by shame or fear. When a person takes interest on a loan, however, the borrower gives it voluntarily; and he is happy that he could find a person from whom he could borrow even at a high rate of interest. The lender is also under the impression that he is doing a great favor to the borrower, who can, by means of the loan, profit many times the amount of the interest. Therefore, it is very easy for a man to be caught in the snare of usury, God forbid. And it is precisely for this reason that our Holy Torah is very strict about this law, and enjoins many specific regulations regarding it. He who lends on interest, transgresses six prohibitory laws and will not be included in the resurrection of the dead; as it is written (Ezekiel 18:13): "He hath given forth upon interest, and hath taken increase; shall he then live? He shall not live." The borrower transgresses three prohibitory laws; the scribe, the witnesses, and the broker who negotiated the loan, as well as anyone who was instrumental in bringing about the loan-even if only by pointing out a person from whom one could borrow, or by telling the lender to whom he could lend-all these transgress one prohibitory law.
2. He who erred and has taken interest, is duty bound to return it.
3. Even if no interest is fixed at the time of the loan, as when the loan has been made free of charge until a certain fixed time, or when merchandise is sold on credit for a certain length of time, and when the time of payment arrives
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the debtor offers to pay the lender or seller for postponing the time of payment, this also is considered usury.
4. Even if the borrower voluntarily returns to the lender, more than he has borrowed, and even if he does not call the excess payment interest, it is forbidden.
5. Even if the borrower, when paying the interest, declares it to be a gift, the lender must not accept it. If, nevertheless, the lender has accepted the interest but later repents and wishes to make restitution, and the borrower refuses to accept it, he is then permitted to retain it.
6. It is forbidden to give interest either in advance of the loan or subsequent to it. As for instance, if Reuben desires to borrow money from Simeon, and while negotiating the loan, he sends a present to Simeon with the explanation, that he does that in order to obtain a loan; or if he makes a substantial present without any explanation, and it is obvious that he does it in order to obtain a loan; this is "advance interest." If Reuben has borrowed money from Simeon, and when he repays the loan, he makes him a present in consideration of the fact that during the period of the loan, the money yielded no profit to Simeon, this is "subsequent interest."
7. If one lends money to another for a certain length of time, with the understanding that the latter would afterwards reciprocate by lending him a larger amount for the same length of time, or the same amount but for a longer period of time, this is forbidden as unqualified interest. If one lends money to another, with the understanding that the borrower would afterwards lend him a like amount for the same length of time, some authorities forbid such a transaction, while others permit it; but it is best to heed the more rigid opinion. If no stipulation, however, has been made to that effect, and the borrower later lends money to the former lender, even though he does that because he had gotten a loan from him previously, it is permissible.
8. The lender must be careful not to derive any benefit from the borrower without his knowledge, while the loan remains unpaid, even if it be something that the borrower would have granted him even if the loan had Lot been made. For since he takes it without the sanction of the borrower, he presumes to rely upon the fact that the borrower would not mind it because of the loan. However, even with the borrower's knowledge, the lender may enjoy only that which the borrower would have granted, even if the loan had not been made, provided it is not done in public.
9. If the borrower had not been accustomed to greet the lender before the loan was made, he must not do so afterwards. He must not show him any special respect in the synagogue or elsewhere, if he had not been accustomed to do so in the past. All kinds of attention by the borrower on account of the loan, even by word of mouth, are forbidden, for it is written (Deuteronomy 23:20): "Interest of any davar (thing; the Hebrew word davar also means word) that is lent upon interest;" even interest in the nature of words is forbidden. The lender, too, must avoid even interest of words, like saying to
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the borrower: "Let me know when so-and-so comes from such-and-such a place." Even though he does not trouble him more than to speak a few words, but since he had not been accustomed to ask such a favor from him previously, and now he bids him to do this because the borrower is obligated to him, such conduct constitutes a form of interest and is forbidden. One may argue and say: "Lo, it is written (Proverbs 22:7): 'The borrower is servant to the lender.'" But this verse applies only to a case where a controversy arises between the lender and the borrower, when the lender says: "Let us go to the High Court for trial there (naming a certain community)," and the borrower says: "Let us try our case in the local court," then the borrower must yield to the lender, as it is written: "The borrower is servant to the lender."
10. The lender is forbidden to derive any advantage from the borrower, even though no money is received directly for the loan. For instance, if the lender is a workman and the borrower had never before been accustomed to give him any work, he is forbidden to accept work from him now.
11. It is forbidden to lend a measure of grain to another to be repaid in kind, even though both grains be of the same sort, for it is possible that the price of grain will advance in the meantime, and consequently he will receive more than he had lent. To make a loan Like this legal, a money valuation should be placed on the grain, so that if the price advances, the borrower will repay him only the amount of money at which the grain was originally valued. If, however, the borrower has some grain in his possession, he may borrow many kors (a certain measure) of the same kind. If a certain kind of produce has a fixed market price, one may borrow such produce even though he has none of it in his possession. All of the above relates only to lending and returning produce of the same kind, but it is forbidden under all circumstances to lend a measure of wheat and be repaid with a millet, although both are sold at the same price and the borrower has some millet in his possession. it is permissible under all circumstances, to lend a small article about the price of which people are usually not concerned whether it advances or decreases in value; a woman is, therefore, allowed to lend a loaf of bread to her neighbor.
12. If a person lends money, getting a lien on a house, a field, or a pew in the synagogue, and he has the usufruct of that security, this gain should be applied towards reducing the debt; that is, a fixed sum should be deducted annually from the debt. This is considered as the rental paid by the lender. They are permitted to make such an arrangement even when the sum agreed upon is smaller than the actual rental value. The Lender, however, must not turn around and rent the property to the borrower. Concerning the law of pledges, there are many diverse opinions, and therefore, one contemplating to make such an arrangement, should consult an expert.
13. It is not permissible to sell an article which has a fixed market price above its value for the reason that credit is extended. But if it has no fixed price, although if he would buy it for cash he would get it for less, it is per-
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missible to charge more, provided the price is not raised to such an extent (that is, one-sixth of the value or more), that it is obvious that the increase is on account of extended credit. Even if the seller does not advance the price very much, but he expressly says to the buyer: "If you pay ready cash you can have it for ten coins, but if on credit you will have to pay eleven," it is forbidden. The purchaser is also forbidden to buy merchandise above the market price, with the intention of reselling it immediately at a loss, so that he may have ready cash at his disposal.
14. If one has a note against his neighbor, be may sell it to another at less than its face value even before it is due, and the seller must give a written statement to the buyer, reading: "I hereby sell and transfer to you this note quid all that it implies." The note must be accepted by the buyer at his own risk, excepting when the seller had already received payment for the note. Just as one may sell a note at less than its face value to a third party, so may he sell it to the borrower.
15. The stigma of taking interest may be avoided in the following manner: Reuben who requires a loan in the month of Nisan, asks Simeon to give him a note whereby Simeon obligates himself to pay Reuben, one hundred gold coins in the month of Tishre; and to cover Simeon against any loss, Reuben gives him a note for the same amount also due in the month of Tishre. Reuben may now sell the note given him by Simeon to Levi for ninety gold coins. (Much more so may this course be pursued, if Simeon has a note given him by Judah, whereby the latter obligates himself to pay a certain sum at some future date. This note, Simeon may sell to Reuben for a certain sum and receive from him a note for the amount stipulated. Then Reuben may sell this note for as much as he can get.) Reuben is not allowed, however, to make a note payable to himself, and sell it to Simeon, even through an agent.
16. It is forbidden to pay for produce or any other commodity to be delivered at some future date, because the price of the produce may advance before the delivery is made, and when the seller delivers the merchandise, the buyer will have received more than the value of his money. If, however, the seller has in his possession all the produce when the transaction is made, although he will not deliver it to the buyer until after some time has elapsed, such a transaction is permissible, for whatever a man has in his possession, he may sell even at a very reduced price, if he sees so fit. Even if the produce in the seller's possession was not yet in perfect condition, requiring one or two processes to make it perfect, nevertheless, it is considered as being ready
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for delivery, and its sale is permissible. But if it still required three or more processes, the transaction is forbidden.
17. When the market price for produce is fixed, one may buy according to this rate for future deliveries by paying in advance, although the seller has none of the produce in stock. For even if the price of the produce advances thereafter, the buyer derives no benefit by his advance payment, since he could have bought the produce then for this price. And since he has made the transaction according to law, if the produce has advanced in price and the seller does not wish to deliver it to him at the original price, he may take instead some other merchandise which the seller may offer him, or the seller must give him the cash value at the present price of the produce.
18. If a person has merchandise which is sold at a low price at one place and at a higher price in another place, and his neighbor says to him: "Give me the merchandise, I will take it to that place, and I will sell it there and use the money for my own purpose until such-and-such date, when I will refund the entire sum which I got for your merchandise, after deducting the expenses incurred in selling it;" then if the risk in transit was taken by the neighbor, the transaction is forbidden, but if the seller took the risk, it is permissible, but he must, in such event reward the neighbor for his trouble.
19. A person, while at the market, may lend his fellow man one hundred denars, with which to buy merchandise, and after returning home, the borrower may give the lender one hundred and twenty denars for his loan, provided the lender carries the goods to his house, and assumes their risk in transit, for then it is considered as though he was a partner sharing in the profits of the transaction.
20. Simeon may say to Reuben who is going to a certain place where goods are sold cheaply: "Bring me goods from that place, and I will give you so much profit," provided Reuben assumes the risk of the goods in transit until it is delivered to Simeon.
21. It is permissible to increase the rent of realty in this manner: If one leases a yard to another, he may say to him before taking possession: "If you pay the rent in advance, you can have it for ten gold coins per annum, but if you pay monthly, I will charge you one gold coin per month." Such a transaction is permissible, because the rental becomes due only at the conclusion of the period of tenancy. Hence, the extra two gold coins are not given to him on account of his waiting for the money. And as regards the proposal:
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"If you pay me the rent immediately, you can have it for ten gold coins pet annum," he simply charges him a lower rent in consideration of his early payment.
22. Only in ease of leasing realty is it allowed to increase the rent in the aforesaid manner, because the tenant acquires immediate use of the premises. But it is forbidden to decrease the wages of a workman in such manner. For instance, if one engages a workman to do some work at some future time, and he gives him his wages in advance before he begins to work, and because of this the worker agrees to do the work at a lower compensation, he is violating the law, since the workman is not employed at that time, the money he receives is in the nature of a loan. However, if the workman begins his work immediately, although he will not complete it until after some time, it is permissible to give him his wages in advance, in order that he may do the work at a lower rate, for since he has commenced the work immediately, it is considered as wages and not as a loan.
23. The dowry of a bridegroom may be increased in consideration of deferred payment. Thus, if the bride's father had pledged a certain sum of money for his daughter's dowry, he may arrange with his prospective son-in-law to pay it in yearly installments, which will total more than the promised dowry. Such an arrangement is allowed, because it is merely an increase in the dowry, and it is as if he had said: "I will give you a gift of so much and so much at a certain time, and if I fail to do so, I will add to the dowry so much and so much." The above agreement is allowed only when the terms are agreed upon when the pre-marriage settlement is put in writing, for until that time, there is no obligation on the father's part to pay anything, and therefore, this agreement is considered as a condition of this obligation. However, if they make such an arrangement later, it is forbidden.
24. When a Jew borrows money from a non-Jew on interest and another Jew becomes surety, if the terms of the loan are that the non-Jew cannot collect the debt from the surety unless the borrower refuses to pay, the payment of interest is permitted. If, however, the non-Jew can in the first instance collect it from the surety, it appears as if the surety had borrowed the money and then lent it to the Jew on interest; such a loan is forbidden. When a non-Jew borrows money from a Jew on interest and another Jew is surety for it, if the terms of the loan are that the lender cannot demand the debt from the surety unless the borrower, the non-Jew, refuses to pay, such interest is permissible. If, however, it is agreed that the lender could in the first instance claim the debt from the surety, then it is considered as though the surety were the borrower, and the interest is, therefore, forbidden, If the Jew is surety only as regards the principal but not the interest, the transaction is permitted.
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25. If a non-Jew says to a Jew: "Borrow some money on interest for me from a Jew on this pawn," or even if he gives him only a promissory note, and the lender relies solely either on the pawn or on the note, while the intermediary assumes no risk whatsoever, such a transaction is allowed. Even if the Jew who is the intermediary brings the interest in person to the lender, the latter may accept it from him, provided that the lender definitely understands that all the risk connected with the loan and the security, whether in transmitting it to the borrower or to the lender, is assumed by him and that the intermediary assumes no risk of any kind in the transaction.
26. The same law applies to a case where a Jew has given a pawn or a note to another Jew, on which to borrow money on interest from a non-Jew; if the non-Jew relies solely on the security or on the note, without holding the intermediary responsible in any way, the loan is permissible. If a Jew at first lends some money to another Jew upon the security of a pledge, and thereafter the borrower says to the lender: "Borrow some money on interest from a non-Jew on this pawn, and I will be responsible for the payment of the principal and the interest," if the non-Jew relies solely on the pawn, the loan is permissible.
27. If a Jew lends money on interest to a non-Jew on a pawn at so much and so much per month, and then he asks another Jew to lend him money on this pawn and receive from the non-Jew the interest which will accrue from that day on until repayment, this transaction is permissible. But if the first-mentioned Jew has compounded the interest for the whole period and applied it to the note (that is, the note is for the full amount of the principal and interest for the whole period of the loan), it is forbidden to borrow on this note the full sum from a fellow Jew, for it is as though he had given the interest from his own pocket.
28. If a Jew deposits money with a non-Jew, and the latter lends the same to another Jew on interest, if the non-Jew assumes the responsibility, that in the event of loss, he would make restitution, the transaction is permitted; but if he accepts no such responsibility, it is forbidden. Therefore, in communities where there are savings banks, or similar institutions, in which Jews hold shares of stock, although the managers are non-Jews, nevertheless, it seems to me that it is an absolute violation of the law for Jews to borrow money from them on interest. It is, therefore, forbidden either to deposit money in such banks (lest an unscrupulous Jew may borrow money from them), or to borrow money from them, lest an unscrupulous Jew has perchance deposited his money there.
29. Partners who are in need of borrowing money on interest from a non-Jew, should consult rabbinical authorities how to go about it.
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30. It is forbidden to borrow money on interest from an apostate, and lending him money on interest also should be avoided.