Yehudah and Rachel had been living in the same two-bedroom apartment since their marriage. Now, with three children and a fourth on the way, they were looking to rent a house in the neighborhood.
They checked the real-estate section of the local paper weekly for available rentals. There were numerous houses for sale, but reasonable rentals were hard to come by.
Toward the end of the summer, Yehudah saw two houses listed. One had four bedrooms, for $4,000 a month, while the other had five, but was asking for $4,500.
Yehudah and Rachel went to see both houses. Rachel was extremely impressed with the layout of the second house. “This serves our needs almost perfectly,” she said. “It also has enough rooms for the kids, an office, and even a spare guest room when our parents visit.”
“But it’s expensive,” replied Yehudah. “We decided that our budget won’t allow more than $4,000 a month.”
“We can try negotiating with them,” said Rachel. “You know that rental prices aren’t fixed in stone.”
“We’re very interested in renting the house,” Yehudah said to the landlord, Aryeh. “However, the $4,500 you’re asking is beyond what we’re able to pay; $4,000 is the maximum we can afford.”
“That’s not enough,” said Aryeh. “I still have a hefty mortgage to pay, and a short-term loan I took out to make renovations.”
“Mortgage or no, $4,500 is too high for us,” replied Yehudah. “We’re looking at another house three blocks a way for $4,000. If you can’t come down, we’ll have to rent there.”
Aryeh thought for a moment. “I’ll make you a deal,” he said. “If you pay monthly – it’s $4,500; if you pay six months up front – I’ll give it to you for $4,200.”
Rachel nodded approvingly to Yehudah. “We would be willing to do that,” said Yehudah. “I don’t know, though, whether we’re allowed to.”
What’s the problem?” asked Aryeh.
“I’m concerned that there may be a prohibition of ribbis, of charging interest,” Yehudah said.
“What do you mean?” asked Aryeh. “Who’s borrowing anything here?”
“Think about it,” said Yehudah. “You want $4,500 monthly, but if we pay six-months ahead, you’re willing to accept a lower rent. It’s like you’re giving us a discount because we’re laying out money to you, like granting you a loan!”
“I hadn’t thought of that,” said Aryeh. “Why don’t we check with Rabbi Dayan if that’s a problem?”
Yehudah and Aryeh met with Rabbi Dayan. “Aryeh offered me a rental discount if I pay six months up front,” Yehudah said. “Is there a prohibition of ribbis involved?”
“A prepayment discount, or two-tier price, for purchase of merchandise is often considered ribbis,” replied Rabbi Dayan. “However, the Mishnah [B.M. 65a] teaches that a prepayment discount for rentals is permissible.” (Y.D. 176:6)
“Would you please explain why there’s a difference between a purchase and a rental?” asked Yehudah.
“One explanation is that a customer has no monetary obligation other than at the consummation of the sale,” explained Rabbi Dayan. “Therefore, any advance payment is considered a loan to the seller; any delayed payment is a loan to the customer. Hence, there is potential ribbis. However, a renter already has an ongoing monetary commitment from the beginning of the rental, even if the payment is due only month by month. Therefore, the prepayment is not viewed as a loan to the landlord, but as payment of the existing rental obligation.” (See Bris Yehudah 26:1 ftnt. 1; Shach C.M. 126:76 )
“Another lomdush [analytical] explanation,” continued Rabbi Dayan, “is that there are two different models of rental. When paying monthly, the rental payment is for the usage itself, and due only at that time. However, paying up front is like ‘acquiring’ immediately, at the time of payment, the usage rights for the whole time period. Thus, there is no ‘prepayment’ – since the legal transaction is occurring now – and no loan.” (Kovetz He’aros, Yevamos #502; Kehillos Yaakov, B.M. #46)