Laws of prohibition of interest loans and of forgiving debts in the seventh year
1. The Torah strictly forbids lending either money or products on the interest rate to another Jew. This prohibition applies both to the loan giver and the one indebted and also to the mediators in the undertaking. If one’s debtor has already returned the debt with interest, it’ll be a mitzvah to reimburse him the interest.
2. If debtor was not going to pay the interest at first, but by the time of reimbursement he suddenly decided to pay it off as a gift, it is forbidden to do so. It is also forbidden to give presents to someone, so that he will be willing to give us a loan in the future.
3. Debtor is forbidden to do anything as means of gratitude to someone from whom he has borrowed. Even if debtor has never greeted his benefactor, but after the loan started to do so, it is forbidden.
4. It is forbidden to lend to someone, on the condition of intention to borrow from him a bigger amount or for a longer period of time.
5. In some cases it is forbidden to lend products, whose price is subject to constant changes. The reason is that the price might rise by the time of reimbursement, and the debtor will be returning more that he had borrowed. In order to avoid the prohibition, one should evaluate the product by the price of today and lend it on condition that is the price rises, the payment of the product will be made according to the original price.
6. It is forbidden to sell products whose price is certain and stable, at a bigger price just because the debtor will pay it off later. All the more so, it is forbidden to say: “If you pay me right away, I will sell it to you for $10, and if you pay in a month, it will be $11”.
7. The Torah allows us to lend and borrow on the interest rate from a non-Jew. There are rather complex laws about loans, in which two Jews and one non-Jew are involved. For instance, a non-Jew borrows from a Jew and then lends it to another Jew; or a non-Jew borrows from a Jew, and another Jew guarantees the pay off, etc. In each and every case one should consult a Rabbi.
8. The Torah commands us to forgive our debtors at the end of Shmitah (the seventh year). The debts, unpaid by Rosh Hashana should be automatically cancelled. The next Shmitah year will be in 5768.
9. If one does not want to forgive someone’s debt, he may prepare the Pruzbul, a special paper by means of which he transfers the loan to the Jewish court. These loans do not get cancelled at the end of Shmitah. In order to prepare the kosher Pruzbul, one should consult a knowing Rabbi.