Is there a legal limit on the interest a lender can charge on a private loan in Israel?

The Fair Credit Law applies to credit given by anyone other than a supervised banking corporation, so it reaches loans between individuals, private lenders, and many non-bank financiers. It sets a maximum total cost of credit, calculated from the Bank of Israel rate plus a fixed statutory margin, with a separate and higher ceiling that applies to arrears interest once a borrower falls behind. Where a lender charges above the permitted maximum, a court can reduce the interest to the lawful level, and interest set above a higher threshold exposes the lender to criminal liability. A borrower can raise the cap as a defense, including when a lender tries to collect the inflated sum through the courts or the Execution Office.

The practical lesson cuts both ways. A lender should put the loan in writing, state the interest clearly, and keep it within the ceiling, because an over-cap loan risks losing the excess interest and drawing a criminal complaint. A borrower who was charged an abusive rate should keep the loan documents and take advice before paying, since the excess may be unenforceable. For a foreign lender or investor, the frequent mistake is to apply home-country interest terms to an Israeli loan without checking the local cap. When the debt later needs enforcement against an individual, an unlawful rate can undermine the whole claim.

From the full guide: Collecting a Debt from an Israeli Individual

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