Ask Aj

Problem: I took a personal loan from a neighbor and we both signed a written agreement, that I would pay the loan with interest. However, the interest rate was not specified. Upon my first installment I received an invoice showing a significantly high interest rate. After failed negotiations attempts, he has threatened to bring a legal action against me. Will I have to pay this unreasonable interest rates, that do not seem to excessive to the service from the lender.

Answer: Firstly, as this is a civil-agreement and not a commercial agreement the clause stating that you will have to pay back the interest shall be deemed null and void, as this is contrary to the general practice in Bahrain. As any form of payment or commission, of whatever nature stipulated by the lender, is considered interest if it is deemed that this payment or commission is not in respect of a commensurate service actually rendered by the lender.

In the event, the lender chooses to bring an action against you, this action will be rejected as it will be considered against the General Practice of Bahrain and you can use this argument as a line of defense in your case.

Furthermore, the lender could face criminal charges and imprisonment, as stipulated under the Bahrain Penal Code.  Declaring that, any person who lends a person money in any manner at an implicit or explicit interest rate, in excess of the maximum rate of interest that may be legally agreed upon shall receive a prison sentence. If the borrower can demonstrate that the lender seized an opportunity when the borrower was in a state of weakness or vulnerability, as this would constitute usury.

To contact Ali Al Jabal at  Al Jabal Consultancy

Attorneys and Legal Consultants
Tel: +973 17 530 400 
E-mail: info@aljaballaw.com  www.aljaballaw.com

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