Question:
A good friend of mine loaned me some money from his line of credit, and now needs to pay interest on that amount. Can I pay him for that interest which he himself is paying to the bank, or is it forbidden to pay him more than the amount that he loaned me? If so, is there a workaround so that I can pay that interest?
Answer:
According to Biblical law, interest may not be paid on loan between two Jews. It is, however, permitted to pay interest to, or receive interest from, a non-Jew, or a non-Jewish bank or credit card. There is nothing intrinsically evil with charging interest; it is an accepted practice in virtually all societies. Nevertheless, we are expected to treat fellow Jews as family members, and brothers don't charge each other interest.
In an instance such as the one you describe, although I understand that you must feel bad knowing that your friend is paying interest in order to lend you money, you still are not allowed to pay him any interest.
You don't owe money to his bank; you owe the money to him. He lent you the money, and repaying him more than he lent you is forbidden.
There is a workaround which can be put into play BEFORE taking a loan, called a "heter iska." The idea behind a heter iska is that instead of asking for a personal loan, the lender and borrower are entering into a business arrangement whose profits will be shared. Your rabbi should have a heter iska form that has to be filled out by both parties.
While the above is the normative halachic ruling in such manners, you should always consult with your rabbi with regards to complex halachic issues such as these. There may factors in a particular circumstances which would affect his customized decision.
For future reference, did you know that there are Jewish "Free Loan" societies, called "gmach's," in many cities, where you can take out a loan, interest free? Your rabbi may be able to help you with this as well.
Rabbi Eliezer Danzinger for Chabad.org
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