It is forbidden to loan money on interest (among Jews). This is a Torah prohibition, as the verse states, “When you lend money to my nation, to the poor among you etc. exact no interest from them.” For instance, if one loans a sum of money to another for a month and stipulates that the borrower must return the principle amount plus a certain percentage, such as if one loans one thousand dollars to a friend and stipulates that the borrower must repay one thousand two hundred dollars, this constitutes the Torah prohibition of charging interest. The sin of Jews who engage in such activities is too great to bear and they shall not arise during the Resurrection of the Dead.
An Eternal Grave
Once, there was a terrible, miserly individual who would loan money on interest who lived in the city of Hagaon Rabbeinu Akiva Eiger. Whenever anyone approached him for Tzedakah, he would constantly refuse to donate. Even when representatives of the Chevra Kaddisha (Jewish burial society) would come and request Tzedakah from him, he would send them away empty-handed. Several years later, when this wicked man died, his sons turned to the Chevra Kaddisha and requested that they bury their father. The Chevra Kaddisha were now afforded an opportunity to exact revenge from the wicked miser and they told his children, “The current price for a grave is one thousand gold coins.” Startled by what they heard, the children began to complain about the overly-inflated price which was many times more the regular price for a grave. They likewise sent an urgent request to the non-Jewish nobleman who governed the city to compel the Chevra Kaddisha to bury their father. Due to the nature of the situation, the nobleman immediately the city’s rabbi, Hagaon Rabbeinu Akiva Eiger. He turned to the venerable rav and asked, “Why are they charging such an exorbitant price for the grave?” The Rav replied, “My dear nobleman. In general, the price for a grave is merely a few hundred gold coins. However, this is only because we believe in the concept of the Resurrection of the Dead; thus, we only collect a minimal fee for a few years of usage. Nevertheless, the deceased, who commonly loaned money on interest, will not be arising during the Resurrection of the Dead and his children are thus requesting to purchase an eternal grave for him. The price is therefore relative and appropriate.”
The Severity of the Sin of Loaning Money on Interest
The Tur writes that one must be exceedingly careful regarding the prohibition of charging interest as there are many Torah prohibitions associated with it. Even the borrower who pays the interest transgresses this sin, as do the witnesses and guarantors of such a loan. The assets of anyone who loans money on interest shall dwindle and it as if he has denied in the Exodus from Egypt and the existence of Hashem, G-d of Israel.
In most banks in Israel, all transactions between Jews are subject to a Heter Iska agreement (a halachic mechanism which permits collecting certain dividends associated with a loan; we cannot delve into all the intricacies of this agreement at this time) which negates the prohibition of loaning money on interest in certain situations according to the Poskim. When private transactions are executed between individuals, all relevant parties must take care that if there are any interest issues related to the transaction, they must consult with a reputed halachic authority who is fluent in the laws interest to prepare a Heter Iska agreement for them according to Halacha.