I am the financial administrator for a yeshivah. A family inquired about receiving a discount for prepaying their remaining bill now, before Purim. I recall that there is a ribbis — interest — issue when one receives a discount for prepaying.

Q: Is it prohibited to give them a discount to prepay their remaining bill?

A: We will not address whether an institution (or any other corporate entity) is prohibited from borrowing money with interest when there is no individual who is responsible for the loan (see Igros Moshe, Y.D. 2:63; cf. Minchas Shlomo 28 and Bris Yehudah 7:26). We will discuss whether prepaying a bill violates the prohibition of ribbis.

Chazal prohibited a merchant from offering two-tiered pricing. This involves offering one price for immediate payment and a higher price to pay at a later date or in installments (called “terms”).

Generally, payment for merchandise is due upon delivery. When merchandise is delivered without taking payment, the merchant has extended a loan to the customer. Consequently, if the merchant charges more for granting terms, he is taking interest for the loan. However, the prohibition is violated only when the ribbis is noticeable in one of the following circumstances:

1) If the seller explicitly offers two-tiered pricing, whether in writing or verbally.

2) If the merchandise has a fixed cost so that it is evident that one is paying extra for those terms.

3) If the higher cost of buying on terms is significant. In circumstances where the extra charge is not noticeable, the prohibition against ribbis is not violated (Y.D. 173:1). Moreover, the prohibition is violated only when the merchant collects additional money for extending terms. If the customer pays the lower cost for the merchandise at the time of the sale, the prohibition is not violated, since a loan was never extended (Y.D. 173:3). Therefore, if a store stipulates that their sale price is for customers who pay at checkout, they may not charge a higher price to customers who take the merchandise on credit. Halachically, the actual price is what is charged at the time of the transaction, and collecting more for buying on credit violates the Rabbinic prohibition against ribbis.

This issue applies when selling merchandise, since payment is due when taking the merchandise. It usually does not apply to rental or leasing charges, which are generally paid upon the completion of the lease (ein sechirus mishtalemes ela l’basof). Accordingly, when the lessee takes possession of the leased object without paying, the owner has not extended a loan, since the money is not due yet. Furthermore, if the lessee chooses to pay before the lease payment is due, e.g., a tenant pays in the middle of the month rather than at the end of the month when the rent is due, he is not lending money to the lessor.

Once they are in the midst of the lease, prepayment is not a loan the lessee extends to the lessor; it is payment for the lease (see Bris Yehudah 26:[1]; Divrei Sofrim 176:35). Consequently, it is permitted for a lessor to offer a discount to a lessee who prepays since there is no loan. Therefore, in your case, since you are in the middle of the terms of the agreement, the family may be granted a discount to prepay the remainder of their bill.

However, if the lessor stipulates that payment is due at the outset of the lease [or if that is the common practice, as is the case in the U.S. with most real estate rentals], two-tiered pricing is prohibited. The stipulation or practice transforms the transaction and is similar to a sale where terms offered for additional payment is considered a loan and is subject to ribbis.