What is the difference between renting and interest?

We can rent a house for 1 year and get the house back with the rental price in the end of rental period. What if we rent a sum of money for 1 year and get the money back with rental price? How does it become interest and what is the real difference between these 2 processes?

Renting and interest differ from each other by these aspects:

A) Interest

1. Interest comes out from giving (lending) money or money-like goods for a certain period of time and receiving it back with an extra benefit.

2. The property loaned for interest is consumed. The borrower returns it by an equal amount of the same type, not the exact property itself.

3. The risk of the loaned property belongs to the borrower. It doesn’t bother the lender if the property is vanished or stolen. The borrower should give the same amount with its interest at the end of defined period no matter what.

B) Rent

1. Renting means transferring the “usage right” of a property from the owner to someone for a certain period. The rental price is the cost of usage right for the defined period.

2. The rented and the received property are exactly the same ones in renting. Rented properties cannot be consumed and consumer goods cannot be rented.

3. All risks and the responsibility of keeping the rented property “ready to use” belong to its owner. Renters just pay for using it.

A house, a field or other types of properties which can be used and returned back later can be rented. All risks -except which arise from the intentional and culpable actions of renter- belong to the owner in this process.

Money and money-like goods cannot be rented because they are consumed. They can only be loaned and loans are subject to interest.

Assoc. Prof. Servet Bayındır

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Date: Feb 26, 2013