Suppose a Jewish fellow needs a loan of $50,000 and has been declined by the bank due to his credit record. The local Gemach can not lend such a large sum so he decides to give his expensive car as collateral to a pawn shop owned by a Jew to receive a loan. Under the terms, the lender holds on to the car (without using it) until the loan is paid back with interest or until the lender exercises an option to sell the car after a certain date and keep all the proceeds in exchange for cancelling the debt.

Can a Heter Iska be drawn for such a loan? Is there a limit on the interest rate?

  • And the pawnshop owner is in this case not interested in fulfilling the biblical positive command of lending to your fellow Jew in need without interest?
    – Double AA
    Aug 13 '15 at 16:42
  • 1
    @DoubleAA: If he was interested there would not be a question. Aug 13 '15 at 16:44

Yes A Heter Iska could be drawn up for this loan.

Let's call your "Jewish fellow" JF, and the pawnshop owner PO.

If the money was not yet given to the borrower, The heter Iska would set the transaction to be an investment by PO to become a partner in the profit generating business of JF. They money which is subsequently paid by JF to PO is not interest but dividends on his investment. The "Rate set for payment is a pre-agreed amount which the investor PO agrees to except and not obligate JF to prove with witnesses or swear that there was no more profits generated. A small Part of the money given by PO to JF is given as fee for JF generating profits from PO's money.

If the money was already given as Aa loan to JF, then besides the Heter Iska, a Kinyan Sudar (an article given from PO to JF) and in return JF gives PO a partnership in his profit generating venture as stated above.

In order for the Heter Iska to work, JF must either be using the $50,000 for a business venture, which can reasonably generate profit eqal to the amount which he will be giving PO as dividends. or he must stipulate in the Heter Iska that PO is becoming a partner in any other profit generating-asset which JF might have, if he has another asset which might generate that amount of profit.

Both parties should understand the workings of the Heter Iska transaction, and agree to the transaction being as stated above, and not think (as, unfortunately many people do), that A Heter Iska is just some religious document which has to be signed in order to permit lending money with interest.

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