Understanding Ribit: 5 Common Interest Mistakes Every Borrower and Lender Should Avoid

If you've ever borrowed money, you're probably familiar with the feeling of wanting to express your gratitude. Perhaps you've considered lending the other person an item, offering them a discount, or doing them a favor in return.

Jewish law teaches that these seemingly innocent gestures can, under certain circumstances, be considered prohibited interest (ribit) if they are given because of the loan.

Following are five important halachot that every borrower and lender should know.

1. Don't Offer Free Use of Your Property Because of the Loan

Just as a borrower may not repay a lender with extra money or any additional benefit beyond the original loan, the borrower may also not provide any other form of benefit simply because the lender extended the loan.

For this reason, a borrower may not allow the lender to live in their home rent-free, use their belongings without charge, or enjoy any of their property if the benefit is being offered solely out of gratitude for the loan.

Example: A child borrows money from a friend. Later, the lender asks to borrow the child's bicycle. If the borrower agrees only because the friend had lent them money, this is prohibited.

2. Even a Rent Discount Can Be Considered Interest

If a landlord has borrowed money from a tenant, the landlord may not reduce the rent because of the loan.

Any discount that is given specifically in return for the loan is considered a prohibited benefit.

3. Don't Work for Free Because Someone Lent You Money

If a service normally carries a fee, a borrower may not perform that service for the lender free of charge — or even at a discounted rate, if the reduced price is being offered because of the loan.

Examples:

• A refrigerator repair technician who borrowed money from a friend may not repair the lender's refrigerator for free or at a reduced price because of the loan.

• A tenant who has delayed paying rent may not offer to perform repairs for the landlord at a discounted price as compensation for the delay if the discount is connected to the outstanding debt.

4. Giving the Lender a Discount Is Also a Form of Benefit

Just as a borrower may not give the lender extra money because of the loan, the borrower may not sell products to the lender at a special discount as a way of showing appreciation.

If the lender shops in the borrower's store, the borrower must charge the regular price.

Examples:

• A clothing store owner who borrowed money from a friend may not offer the lender a special discount on a suit simply because of the loan.

• A store owner offers customers the opportunity to deposit 500 shekels in advance in exchange for a 10% discount throughout the month. This arrangement may violate the prohibition of interest, because the advance payment is considered a loan to the store owner, and the discount becomes a financial benefit given to the lender in return for that loan.

5. Paying More Than the Going Rate Is Also Prohibited

Just as a borrower may not sell goods to the lender below market price, the borrower may also not purchase goods from the lender at an inflated price as a way of expressing gratitude for the loan.

Example: A grocery store owner lends money to a friend. When the borrower later purchases a carton of milk from the lender's store, the borrower may not intentionally pay more than the normal price simply to repay the lender's kindness.

These laws highlight an important principle in Jewish law: a loan should remain an act of kindness, free from any financial gain or additional benefit that arises because the money was lent. By preserving that distinction, both the borrower and the lender ensure that the transaction remains fair, ethical, and in accordance with the Torah's prohibition against ribit.