Prohibition of Interest in Late Payment Penalty
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Question
Is it permissible to lend for a fixed period, and if the payment is not made, the borrower pays a penalty?
Answer
It is prohibited, even if the penalty is a one-time charge and does not increase.
Source
Shulchan Aruch, Yoreh De'ah, Siman 177, Paragraphs 15-16. Chavot Da'at, Siman 163, Subsection 4.
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