What is a usury law?
A usury law is a state regulation that sets a maximum interest rate a lender can charge on borrowed money. These caps vary significantly across states and apply differently to various loan types.
Usury laws place a ceiling on how much interest a lender can charge when you borrow money. Each state in the South and Central U.S. sets its own limit, and these caps differ dramatically from one state to another. What counts as legal lending in Texas may be illegal in Arkansas, for example.
These state-level rules exist to protect borrowers from predatory lending. Without usury caps, a lender could theoretically charge 100% interest or more on a loan. The regulations keep rates within bounds that legislatures consider reasonable for different loan categories.
Usury laws apply differently depending on the type of loan. General consumer loans, mortgage loans, and payday loans often have separate rate caps. Some states allow higher rates on short-term loans or loans to less creditworthy borrowers. A few states have no usury cap at all, while others set rates as low as 10% annually.
For borrowers shopping for credit across different states, knowing the local usury ceiling matters. A loan that is legal in one state might violate another state's law. Lenders operating in multiple states must comply with each jurisdiction's rules. If a lender charges above the state usury cap, the excess interest may be unenforceable, and in some cases the lender faces penalties.