Interest in Jewish Law: 4 Important Halachot About Loans, Banks, and Non-Jews

A mortgage, a savings plan for your children, an overdraft in your checking account, or a purchase divided into three credit card payments: all of these may involve interest. Jewish law does not only ask how much interest is being charged, but also whose money is on the other side of the transaction.

Following are four important halachot from the halachic work Brit Pinchas.

Interest Involving a Non-Jew Is Permitted and Even a Mitzvah

1. The prohibition against charging or paying interest applies only to a loan between two Jews. If either the lender or the borrower is a non-Jew, the prohibition of interest does not apply.

Therefore, a Jew who borrows money from a non-Jew may pay interest on the loan. Likewise, a Jew who lends money to a non-Jew may charge interest.

Not only is this permitted, but according to the Rambam, there is even a mitzvah involved. The Rambam writes (Hilchot Malveh VeLoveh 5:1): “It is a positive commandment to charge a non-Jew interest, as it says (Deuteronomy 23:21), ‘You may charge interest to a foreigner.’ Through the Oral Tradition, they learned that this is a positive commandment, and this is the law of the Torah.”

Borrowing From and Depositing Money in a Non-Jewish-Owned Bank

2. It is permitted to borrow money from a bank owned by non-Jews and repay the loan in installments that include interest. Likewise, it is permitted to deposit money in interest-bearing savings plans at such a bank.

However, today many banks outside Israel also have Jewish ownership. It is therefore important to determine whether the bank has a valid heter iska, a halachic arrangement that structures financial transactions in a way that avoids the prohibition of interest.

When a Business Is Owned by Both Jews and Non-Jews

3. What happens when a Jew and a non-Jew jointly own money and another Jew wants to borrow from those jointly held funds with interest?

If most of the money belongs to the Jewish partner, or if half belongs to the Jewish partner, it is forbidden to borrow the money with interest.

If most of the money belongs to the non-Jewish partner, one should nevertheless be stringent and refrain from borrowing the money with interest.

The rules are somewhat different when it comes to a bank jointly owned by Jews and non-Jews. If half or most of the bank’s owners are Jewish, it is forbidden to borrow from the bank with interest. If the majority of the owners are non-Jewish, borrowing with interest is permitted.

Giving an Interest-Free Loan to a Jew Takes Priority

4. Suppose a person has money available to lend and two people approach him: a Jew who wants an interest-free loan and a non-Jew who is willing to borrow the money with interest.

There is a mitzvah to lend the money to the Jew without interest rather than choosing the financial profit that could be earned by lending it to the non-Jew, even though charging the non-Jew interest is permitted.

However, if the money is intended for the lender’s business or livelihood, he may give preference to lending it to the non-Jew in order to earn interest for his business needs.