What rate of interest should a Christian charge?

Contribution for a guest commentary series entitled “Radical Economics.”

by Craig Van Hulzen

President PLNU Foundation Board, PLNU Alum (1994)

An appropriate interest rate on a loan is more complex question than often supposed. The immediate reaction to this question might conjure up negative thoughts of usury (exorbitant) or positive thoughts on brotherly love and kindness, both suggesting a Christian might be willing to accept a lower rate of interest than a “typical” lender.

Risk analysis has two critical components: identified known risk plus an allowance for the collective unknown, and both have to be considered. Known risk could include the specific reason the money is being lent (a house, location, the borrower’s capacity to pay, etc.) while the unknown is obviously more speculative (economic downturn, a house fire, illness, etc.) But the rate should also factor in opportunity cost.  For a PLNU student, choosing to go to college is an opportunity cost when you could be working full time. The economic benefit difference should be factored into the final decision.

Adding in the “Christian” qualifier further complicates the question.  Stewardship would demand that an investment seek to earn a rate commensurate with the risk of loss, yet do so in a dignified and fair method. But the Christian has even a further dilemma.  Is there a further “kingdom” opportunity cost? 

For those who urge lending between Christians at a rate below “market” (to another Christian) the risk exists (and often manifests itself) by the creation of “sour grapes” within the church. What should be said or not said among the parties and community when a Christian defaults on a loan to another Christian? Is forgiveness of debts always the solution? What of the issue of personal responsibility? Is it possible that an unintended negative “church” factor is born from lending at “below market” rates to other Christians? Nor are these decisions free to be made apart from outside forces,  for there have been more than a few problems in the Christian community when beneficiaries (churches, pastors, denominations, etc) commingle  investment responsibilities (endowment, fund, gift pool, etc) with well-intended actions benefitting fellow believers. Prevailing laws provide clear standards of fiduciary duty in these cases, regardless of Christian intent.

Likewise, lending to a non-believer might suggest an eternal opportunity cost for a believer for the funds could have been given to the church or to a Christian instead. But should we view loans from Christians to non-Christians as a potential means to open doors for conversations of talking with them about Jesus? As to the source of money, should it be lent if it is “leveraged” or borrowed money from another source? Each door in this analysis seems to open another door for consideration.

It seems to me that there is no “one size fits all” answer to what are appropriate terms for Christians to loan money, both to other Christians and to non-Christians. It may well be that this tension is the result of our cognitive dissonance, or the burden of holding several conflicting ideas simultaneously. While we may want to reduce a complex situation to simple platitudes, it may be that in risk analysis we cannot do so. Yet clearly the degree to which these practices conflicts or aligns with the lender’s moral code is of critical importance to the analysis.

Read this article and other related articles on Radical Economics click here!

To provide the PLNU community a wide variety of perspectives and experiences on economics, the CJR and the FBEI have coordinated a series of students, alums, and professors to share their ideas on a variety of topics, most of which can be found in the PLNU Weekly, the school newspaper. PLNU, the Center for Justice and Reconciliation (CJR) and the Fermanian Business & Economic Institute (FBEI) value different viewpoints on important topics, and therefore we have also posted the articles here in the News Section (to the right). The opinions expressed in these articles, as well as those of Ched Myer, are those of their individual authors and do not necessarily reflect the views of PLNU, the CJR or the FBEI.