Key Takeaways:

  • Usury laws set maximum interest rates to protect borrowers from excessive charges.

  • Interest rate limits vary significantly across different states and loan types.

  • Federal regulations can override state usury laws, especially for national banks.

  • Legal interest rates differ from general usury rates and apply in specific situations.

  • Certain loans, like credit cards and car loans, often have exceptions to state usury limits.

In a world where using credit cards and taking loans are the norm, it is important to understand the rules surrounding interest rates to protect yourself financially (and, in some cases, from legal complications). 

This is where usury laws come in. Usury laws are essentially laws related to interest rates. They set maximum limits on the interest that can be charged on loans to protect borrowers from predatory lending practices. Find out more below.

What Are Usury Limits?

Usury refers to the unethical practice of charging excessive interest rates to a borrower. To solve this problem, many states set a limit to the maximum interest rate that can be charged. This is known as the usury limit, and it protects borrowers from vicious cycles of debt caused by excessive interest rates.

However, usury limits can vary by state in the U.S. so it is important to understand the laws regarding interest rate limits within your jurisdiction. 

Federal vs. State Interest Rate Laws

Not only do usury limits vary by state, but federal interest rate laws can sometimes be different from state laws and may significantly impact how interest rates are applied.

For example, most credit card companies and national banks are often exempt from state-imposed usury limits. Instead, they are allowed to charge the maximum interest rate permitted in the state in which they were incorporated. This means that even if you live in a state with strict usury laws, your bank or credit card company can still charge you the maximum interest rate allowed in their home state.

In addition to this, the Monetary Control Act of 1980 allows certain lenders to charge interest rates that are higher than what would typically be allowed by a state. This federal law was enacted to address economic challenges during the high-interest-rate era of the 1980s, but it is still relevant in today’s economy and society.

For this reason, understanding usury laws and state interest rate limits is extremely important, especially if you are taking loans from a national bank or lender.

Legal Rates vs. General Usury Rates

If you are thinking of taking a loan from a national bank or lender, you need to understand the difference between the "legal rate of interest" and the "general usury rate". 

The legal rate of interest is essentially a baseline figure set by state law. It is typically used in court judgments or when no specific interest rate has been agreed upon in a contract. 

On the other hand, the general usury rate refers to the maximum interest rate a lender can charge on loans and other credit agreements.

These rates are not always the same. For example, a state might set a legal interest rate at 5% but allow lenders to charge a general usury rate of up to 12% on personal loans. 

By understanding which rate applies to your specific situation, you can plan ahead so you do not face financial difficulties from unexpected charges.

Maximum APR by State and Exceptions to Usury Laws

Not only do usury laws vary by state, but can also vary by the type of loan. For instance, some states may allow charging higher interest rates for car loans and credit cards. Some states may even have no usury limits for specific types of lenders, such as payday lenders or federally chartered banks.

Moreover, financial institutions like credit unions and some specialized lenders are allowed to charge an annual percentage rate (APR)  that is different from what is defined in the state law. They can even exceed the limits set by the state law. 

Exceptions to Usury Laws

To make it easier for you to understand some of the common exceptions to usury laws, we have compiled a short list below so you can find out who is exempt from usury limits and under what circumstances. 

  • Credit Cards: Many states exempt credit card companies from usury limits, allowing them to charge higher rates than would typically be allowed.

  • Car Loans: Auto loans often have higher permissible interest rates than personal loans, as they're considered secured loans.

  • Federally Chartered Banks: As previously mentioned, national banks often have the ability to charge higher interest rates than state usury laws would allow.

Additionally, loans to businesses or corporations typically have fewer restrictions than loans to individuals. This is because businesses are presumed to have a greater understanding of financial risks and are therefore subject to fewer consumer protections.

Usury Limits by State

As you can see, usury laws are a very complicated legal area. Transactions that a person would not consider to be affected by usury, such as repurchase agreements, are often subject to these limits.

Below is a closer look at the different usury limits set by different states in the U.S.

A

  • ALABAMA: The legal rate of interest is 6%; the general usury limit is 8%. The judgment rate is 12%.

  • ALASKA: The legal rate of interest is 10.5%; the general usury limit is more than 5% above the Federal Reserve interest rate on the day the loan was made.

  • ARIZONA: The legal rate of interest is 10%.

  • ARKANSAS: The legal rate of interest is 6%; for non-consumers, the usury limit is 5% above the Federal Reserve's interest rate; for consumers, the general usury limit is 17%. Judgments bear interest at the rate of 10% per annum, or the lawful agreed-upon rate, whichever is greater.

C

  • CALIFORNIA: The legal rate of interest is 10% for consumers; the general usury limit for non-consumers is more than 5% greater than the Federal Reserve Bank of San Francisco's rate.

  • COLORADO: The legal rate of interest is 8%; the general usury limit is 45%. The maximum rate to consumers is 12% per annum.

  • CONNECTICUT: The legal rate of interest is 8%; the general usury rate is 12%. In civil suits where interest is allowed, it is allowed at 10%.

D

  • DELAWARE: The legal rate of interest is 5% over the Federal Reserve rate.

  • DISTRICT OF COLUMBIA: The legal rate of interest is 6%; the general usury limit is in excess of 24%.

F

  • FLORIDA: The legal rate of interest is 12%; the general usury limit is 18%. On loans above $500,000, the maximum rate is 25%.

G

  • GEORGIA: The legal rate of interest is 7%. On loans below $ 3,000, the usury limit is 16%. On loans above $ 3,000, the limit appears to be 5% per month. As to loans below $250,000, the interest rate must be specified in simple interest and in writing.

H

  • HAWAII: The legal rate of interest is 10%. The usury limit for consumer transactions is 12%.

I

  • IDAHO: The legal rate of interest is 12%. Judgments bear interest at the rate of 5% above the U.S. Treasury securities rate.

  • ILLINOIS: The legal rate of interest is 5%. The general usury limit is 9%. The judgment rate is 9%.

  • INDIANA: The legal rate of interest is 10%. Presently there is no usury limit; however, legislation is pending to establish limits. The judgment rate is also 10%.

  • IOWA: The legal rate of interest is 10%. In general, consumer transactions are governed at a maximum rate of 12%.

K

  • KANSAS: The legal rate of interest is 10%; the general usury limit is 15%. Judgments bear interest at 4% above the federal discount rate. On consumer transactions, the maximum rate of interest for the first $1,000 is 18%, above $1,000 is 14.45%.

  • KENTUCKY: The legal rate of interest is 8%; the general usury limit is more than 4% greater than the Federal Reserve rate or 19%, whichever is less. On loans above $15,000, there is no limit. Judgments bear interest at the rate of 12% compounded yearly, or at such rate as is set by the Court.

L 

  • LOUISIANA: The legal rate of interest is one point over the average prime rate, not to exceed 14% nor be less than 7%. Usury limit for individuals is 12%, and there is no limit for corporations. (As warned, you cannot evade the limit by forming a corporation when the loan is actually to an individual.)

M

  • MAINE: The legal rate of interest is 6%. Judgments below $30,000 bear 15%; otherwise, they bear interest at the 52-week average discount rate for T-Bills, plus 4%.

  • MARYLAND: The legal rate of interest is 6%; the general usury limit is 24%. There are many nuances and exceptions to this law. Judgments bear interest at the rate of 10%.

  • MASSACHUSETTS: The legal rate of interest is 6%; the general usury rate is 20%. Judgments bear interest at either 12% or 18%, depending on whether the court finds that a defense was frivolous.

  • MICHIGAN: The legal rate of interest is 5%; the general usury limit is 7%. Judgments bear interest at the rate of 1% above the five-year T-note rate.

  • MINNESOTA: The legal rate of interest is 6%. The judgment rate is the "secondary market yield" for one-year T-Bills. Usury limit is 8%.

  • MISSISSIPPI: The legal rate of interest is 9%; the general usury limit is more than 10%, or more than 5% above the federal reserve rate. There is no usury limit on commercial loans above $5,000. The judgment rate is 9% or a rate legally agreed upon in the underlying obligation.

  • MISSOURI: The legal and judgment rate of interest is 9%. Corporations do not have a usury defense. (Remember that a corporation set up for the purpose of loaning money to an individual will violate the usury laws.)

  • MONTANA: The legal rate of interest is 10%; the general usury limit is above 6% greater than New York City banks' prime rate. Judgments bear interest at the rate of 10% per annum.

N

  • NEBRASKA: The legal rate of interest is 6%; the general usury limit is 16%. Accounts bear interest at the rate of 12%. Judgments bear interest at the rate of 1% above a bond yield equivalent to T-bill auction price.

  • NEVADA: The legal rate of interest is 12%; there is no usury limit.

  • NEW HAMPSHIRE: The legal rate of interest is 10%; there is no general usury rate.

  • NEW JERSEY: The legal rate of interest is 6%; the general usury limit is 30% for individuals and 50% for corporations. There are a number of exceptions to this law.

  • NEW MEXICO: The legal rate of interest is 15%. Judgment rate is fixed by the Court.

  • NEW YORK: The legal rate of interest is 9%; the general usury limit is 16%.

  • NORTH CAROLINA: The legal interest rate and the general usury limit is 8%. However, there is a provision for a variable rate, which is 16% or the T-Bill rate for non-competitive T-Bills. Above $25,000, there is no express limit. However, the law providing for 8% is still on the books.

  • NORTH DAKOTA: The legal rate of interest is 6%; the general usury limit is 5.5% above the six-month treasury bill interest rate. The judgment rate is the contract rate or 12%, whichever is less. A late payment charge of 1.75% per month may be charged to commercial accounts that are overdue, provided that the charge is revealed prior to the account being opened and that the terms were less than 30 days — that is, that the account terms were net 30 or less.

O

  • OKLAHOMA: The legal rate of interest is 6%. Consumer loans may not exceed 10% unless the person is licensed to make consumer loans. Maximum rate on non-consumer loans is 45%. The judgment rate is the T-Bill rate plus 4%.

  • OREGON: The legal rate is 9%, the judgment rate is 9% or the contract rate, if lawful, whichever is higher. The general usury rate for loans below $50,000 is 12% or 5% above the discount rate for commercial paper.

P

  • PENNSYLVANIA: The legal rate of interest is 6%, and this is the general usury limit for loans below $50,000, except for: loans with a lien on non-residential real estate; loans to corporations; loans that have no collateral above $35,000. Judgments bear interest at the legal rate. It is criminal usury to charge more than 25%.

  • PUERTO RICO: The legal rate of interest is 6%; all other rates are set by the Finance Board of the Office of Commissioner of Financial Institutions. Judgments bear interest at the same rate as the underlying debt.

R

  • RHODE ISLAND: The legal rate of interest and judgment rate is 12%. The general usury limit is 21% or the interest rate charged for T- Bills plus 9%.

S

  • SOUTH CAROLINA: The legal rate of interest is 8.75%, and judgments bear interest at the rate of 14%. Subject to federal criminal laws against loan sharking, there is no general usury limit for non-consumer transactions. The South Carolina Consumer Protection Code provides regulations for maximum rates of interest for consumer transactions. Please consult with counsel for the latest rates.

  • SOUTH DAKOTA: The legal rate of interest is 15%; judgments bear interest at the rate of 12%. There is no other usury limit. There are certain limitations on consumer loans below $5,000.00.

T

  • TENNESSEE: The legal rate and judgment rate of interest is 10%. The general usury limit is 24%, or four points above the average prime loan rate, whichever is less.

  • TEXAS: The legal rate of interest is 6%. Interest does not begin until 30 days after an account is due. The judgment rate of interest is 18% or the rate in the contract, whichever is less. There are a number of specific ceilings for different types of loans, so please see counsel for information.

U

  • UTAH: The legal rate of interest is 10%. Judgments bear interest at the rate of 12% or a lawfully agreed upon rate. There are floating rates prescribed for consumer transactions. Please see counsel for information.

V

  • VERMONT: The legal rate of interest and judgment rate of interest is 12%. On retail installment contracts, the maximum rate is 18% on the first $500, and 15% above $500. The general usury limit is 12%.

  • VIRGINIA: The legal rate of interest is 8%. Judgments bear interest at the rate of 8% or the lawful contract rate. Corporations and business loans do not have a usury limit, and loans over $5,000 for "business" or "investment" purposes are also exempt from usury laws. Consumer loans are regulated and have multiple rates.

W

  • WASHINGTON: The legal rate is 12%. The general usury limit is 12%, or four points above the average T-Bill rate for the past 26 weeks, whichever is greater. (The maximum rate is announced by the state treasurer.) Judgments bear interest at the rate of 12% or the lawful contract rate, whichever is higher.

  • WEST VIRGINIA: The legal rate of interest is 6%. The maximum "contractual" rate is 8%; the Commissioner of Banking issues rates for real estate loans and may establish a maximum general usury limit based on market rates.

  • WISCONSIN: The legal rate of interest is 5%. There are myriad rates for different types of loans. There is no general usury limit for corporations. Note that a loan to an individual, even if a corporation is formed, will violate the law. The judgment rate of interest is 12%, except for mortgage foreclosures, where the rate will be the lawful contract rate.

  • WYOMING: The legal rate and judgment rate of interest is 10%. If a contract provides for a lesser rate, the judgment rate is the lesser of 10% and the contract rate.

Since there are so many factors that affect usury limits and state interest rates, it’s always a good idea to consult with a legal expert to understand what laws apply to your situation.

Final Thoughts

Understanding usury laws and interest rate limits is essential for anyone borrowing money. Although laws are designed to protect borrowers from excessive interest rates, they can be very complicated, as there are many factors that come into play. 

To ensure that you're compliant with both state and federal regulations, it's always a good idea to consult a legal professional. UpCounsel provides access to experienced attorneys who can help guide you through the complexities of state and federal laws.

FAQ

What is the highest interest rate you can legally charge? 

The highest rate varies by state, but national banks and credit card companies are allowed by federal laws to charge higher rates.

What are state laws setting a maximum limit on interest rates called? 

State laws that set caps on the interest rates lenders can charge borrowers are called usury laws.