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What is the Maximum Interest Rate on a Loan PDF Print E-mail
Written by Wes Smith   
Wednesday, 28 November 2012 16:28

Is there a maximum legal interest rate that can be charged on a loan? Most states in the United States have statutory limits on how much interest that can be charged when you lend money. The limiting of the maximum amount of interest that can be charge is know as “Usury Laws”.

Not only does usury laws restrict the interest rates of banks, consumer loan companies and other business that extend credit. Loan agreements between private individuals are also governed by state usury laws.  If a person agrees to lend a friend or family member $1,000, the interest rate cannot exceed the maximum set by the state usury statute. In most states a late charge or other fee required from borrower is also counted as interest.

A lender may be guilty of the crime of usury if he charges higher than the maximum amount of interest. In addition, courts may modify contracts that contain usurious rates of interest by reducing the interest to the legal maximum. Some courts have been known to totally eliminate the interest and only require the principal to be paid back.

Each state has its owns Usury Laws, so interest that may be charged will differ from state to state. Limits set by states range from 4% above the Federal Reserve Discount Rate at the time the loan is made to as high as 30%.   Not only does rate restrictions vary from state to state but different limits are set for different kinds of loans.  Higher interest rates are usually allowed on consumer loans than on home mortgages. Many states have no limit for loans over a certain amount.  Payday Lenders  are often allowed to charge high interest rates because thirty-eight states have specific statutes that allow for payday lending. These payday lending statute allows for high interest rate.

Before you lend someone money see an attorney to make sure that you do not violate your state’s usury laws.

Last Updated on Thursday, 29 November 2012 09:52
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