From the Rav’s Desk: Asking a friend take an interest loan from a bank on your behalf

1. Question: [Monday, 2^nd Elul 5781]

I need to take out a loan from a bank for about $50,000 although I cannot do so [for a normal interest fee] due to my credit line and asked a relative of mine who has greater credit if he would be willing to take out the loan in his name on my behalf and I will pay him back including the interest that the bank places on the loan. He said he’s willing to do so but wants me to find out if there is any prohibition of Ribis involved in our arrangement for him to take the interest loan and me to pay him back the amount including the interest? The bank is Gentile owned.

Answer:

It is forbidden for you to do the above arrangement due to the Ribis prohibition. Although you may and must certainly pay your friend back the initial amount that he borrowed from the bank on your behalf, nonetheless, it is forbidden for you to pay him the interest on the loan. Now, although it is possible to arrange through a Beis Din for a Heter Iska between you and your friend to be signed after he takes out the loan from the bank prior to him transferring you the money, practically this is not a suggested approach, and it is better that you borrow the money from a gentile bank in your name for a greater interest fee, then to do the above arrangement even with Heter Iska. Without a Heter Iska, it is a Biblical prohibition of Ribis.

Explanation: Although it is permitted to take an interest loan from a gentile, it is forbidden for one to collect interest on a loan that he gave a Jew with the money he borrowed from a gentile, and then give that interest to the gentile, if the gentile is legally able to collect the loan from him if he wanted. In other words, a Jew who brokers an interest loan from a gentile to a Jew, then if the gentile is able to collect the loan from the broker, it is forbidden for the broker to have the Jewish borrower pay the interest of that loan. The reason for this is because in such a case we view the money transferred from the Jew who borrowed from the bank, to his friend for whom he borrowed the money for, as an independent loan between him and his friend that has nothing to do with the gentile. The fact that he got the money for the loan from a gentile is irrelevant, and is viewed as an independent loan between him and the gentile that has nothing to do with his friend. Thus, when he transfers the borrowed money to his friend and asks him to pay him back the money including the interest in order to cover his own interest in paying back the gentile, we view it as if he is taking interest on a loan between two Jews which is biblically forbidden, and the fact that he plans on using that interest money to then pay his own interest on the loan to the gentile is halachically irrelevant. Thus, if one borrowed money from a bank on behalf of his friend, since the bank can and will collect the loan specifically from him and not from his friend, therefore he must cover the interest charge of the loan and cannot ask his friend to pay him the interest for him to then give it to the bank, due to a Ribis prohibition. Thus, if he is not willing to do his friend the favor and charity of personally paying the interest on the loan that he is taking on his behalf, then he may not do this arrangement.

Explanation regarding Heter Iska: The workaround to permit interest loans between two Jews that is provided through a Heter Iska is very complex according to Halacha, is not valid according to all opinions, contains details that can invalidate it according to all, and in general is not to be done unless it is a time of great need, and even then many Rabbanim and God fearing Jews are stringent to never taken interest loan from another Jew even with Heter Iska. This was likewise the Rebbe’s custom, as he personally testified, to never rely on Heter Iska.

Sources: See Admur Ribis 64; Michaber Y.D. 169:17; 170:1; Bava Metzia 71a; Rosh 56; Ran 71b; Shacha 169:52; Taz 170:3; Igros Moshe Y.D. 3:42-1; Bris Pinchas [Veind] 17:4-6; Toras Ribis 5:19; 17:14-15; Regarding relying on Heter Iska: See Admur Hilchos Ribis 42; Tzemach Tzedek Y.D. 288; Igros Kodesh 10:165