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Introduction to Usury Laws
Understanding Usury: Key Concepts
State-by-State Usury Laws
How Usury Laws Affect Seller-Financed Notes
Federal Usury Regulations
Consequences of Violating Usury Laws
FAQ: Common Questions About Usury Laws
Usury Glossary of Terms
Usury laws are state and federal regulations that set the maximum interest rate a lender can legally charge on a loan. These laws have existed in some form for thousands of years, rooted in the fundamental principle that borrowers should be protected from exploitative lending practices. In the United States, usury laws vary dramatically from state to state, creating a patchwork of regulations that anyone involved in lending, borrowing, or buying and selling mortgage notes must understand.
For note holders, real estate investors, and anyone involved in seller financing, usury laws are not an abstract legal concept. They directly impact the interest rates you can charge, the enforceability of your notes, and the marketability of your paper on the secondary market. A note that violates usury laws can be rendered partially or entirely void, resulting in severe financial penalties for the lender.
This comprehensive guide covers usury laws across all 50 states, explains how they interact with seller-financed mortgage notes, and provides the practical knowledge you need to structure compliant transactions. Whether you are creating a new seller-financed note or looking to sell an existing mortgage note, understanding these laws is essential to protecting your investment.
Before diving into the state-by-state breakdown, it is important to understand the key terminology and concepts that govern usury law in the United States.
The general usury rate is the default maximum interest rate that applies to most consumer loans when no specific exemption applies. This is the baseline ceiling. If a lender charges more than this rate on a covered transaction, the loan may be considered usurious. In many states, this rate applies when no written agreement specifies a different rate, or when the transaction type does not qualify for a higher cap.
The contract rate is the maximum interest rate that parties can agree to in a written agreement. In most states, the contract rate is higher than the general usury rate, reflecting the legal principle that sophisticated parties should have the freedom to negotiate terms. Some states set a specific percentage, while others tie the contract rate to a variable benchmark such as the Federal Reserve discount rate or Treasury bill yields.
The judgment rate is the interest rate that accrues on court-ordered judgments. When a court awards damages or a debt collection judgment, the unpaid amount accrues interest at this rate until paid. Judgment rates vary widely by state and may be fixed by statute or tied to the original contract rate.
Most states treat usury as a civil matter, meaning the penalties are financial rather than criminal. The lender may forfeit the excess interest, lose the right to collect any interest, or in some states forfeit the entire principal. However, several states also have criminal usury statutes that can result in felony charges when interest rates exceed a certain threshold. New York, for example, sets civil usury at 16% and criminal usury at 25%.
Nearly every state exempts certain types of transactions from usury limits. Common exemptions include:
The following table provides a comprehensive overview of usury laws across all 50 states. Rates are current as of 2026, but because some states tie their limits to variable benchmarks (such as the Federal Reserve discount rate or Treasury bill yields), the effective maximum rate in those states may fluctuate. Always verify the current rate with the applicable state statute before structuring a transaction.
| State | General Usury Rate | Contract Rate | Judgment Rate | Exemptions / Notes | Statute |
|---|---|---|---|---|---|
| Alabama | 8% | 8% | 12% | Legal rate 6% when no agreement. Banks and licensed lenders exempt. | Ala. Code § 8-8-1 |
| Alaska | 10.5% | 5% above Fed Reserve rate | 10.5% | General rate is 10.5% or 5% above Fed discount rate, whichever is greater. Business loans over $25,000 exempt. | Alaska Stat. § 45.45.010 |
| Arizona | 10% | No limit (by agreement) | 10% | Parties may agree to any rate by written contract. Effectively deregulated for written agreements. | Ariz. Rev. Stat. § 44-1201 |
| Arkansas | 17% (consumer) | 5% above Fed Reserve rate | 10% | Constitutional cap. Non-consumer: 5% above Fed discount rate. Legal rate 6% when no agreement. | Ark. Const. Art. 19 § 13 |
| California | 10% (personal) | 5% above Fed Reserve rate | 10% | 10% cap applies to non-exempt personal/consumer loans. Business and real estate broker-arranged loans exempt. Licensed lenders exempt. | Cal. Const. Art. XV § 1 |
| Colorado | 12% (consumer) | 45% | 8% | Legal rate 8%. Contract rate cap is 45% (effectively no cap for most commercial transactions). Consumer cap 12%. | Colo. Rev. Stat. § 5-12-101 |
| Connecticut | 12% | 12% | 10% | Legal rate 8%. Business loans over $10,000 exempt. First mortgage loans by licensed lenders exempt. | Conn. Gen. Stat. § 37-4 |
| Delaware | 5% above Fed Reserve rate | No limit (by agreement) | 5% above Fed Reserve rate | Effectively deregulated. No usury cap on written contracts between parties. Major banking haven. | 6 Del. Code § 2301 |
| Florida | 18% | 25% (under $500K) | 11% | 18% general; 25% for loans under $500,000. Over $500,000: 25% is criminal usury. Legal rate 12%. | Fla. Stat. § 687.02 |
| Georgia | 7% | 5% per month (60% annual) criminal | 12% | Simple interest contracts allowed up to 5% per month. Criminal usury at 5% per month (60% annually). Loans under $3,000 capped at 16%. | Ga. Code § 7-4-2 |
| Hawaii | 10% | 12% (consumer) | 10% | Legal rate 10%. Consumer transactions capped at 12%. Business and commercial loans may have higher limits. | Haw. Rev. Stat. § 478-2 |
| Idaho | 12% | No limit (by agreement) | 5% above T-bill rate | Parties may agree to any rate in writing. Legal rate 12% when no agreement. Effectively deregulated by contract. | Idaho Code § 28-22-104 |
| Illinois | 9% | 9% | 9% | Legal rate 5%. Business loans over $5,000 exempt. Residential mortgages by licensed lenders exempt. | 815 ILCS 205/4 |
| Indiana | No general limit | No limit (by agreement) | 10% | Legal rate 10%. No general usury cap for most loans. Consumer credit governed by separate statutes. One of the most lender-friendly states. | Ind. Code § 24-4.6-1-101 |
| Iowa | 5% (legal) | No limit (by agreement) | Variable (T-bill + formula) | Legal rate 5%. Consumer transactions governed separately (max 12% consumer). Written contracts between parties may exceed legal rate. | Iowa Code § 535.2 |
| Kansas | 10% | 15% | 4% above Fed discount rate | Legal rate 10%. Contract rate up to 15%. Business loans over $25,000 and real estate secured by first lien exempt. | Kan. Stat. § 16-201 |
| Kentucky | 8% | 4% above Fed rate or 19% | 12% (compounded) | Usury limit: lesser of 4% above Fed discount rate or 19%. Loans over $15,000 to businesses exempt. Legal rate 8%. | Ky. Rev. Stat. § 360.010 |
| Louisiana | 12% | 12% | Legal rate (variable) | Maximum 12% or prime + 1% (not to exceed 14%, not below 7%). Business loans over $5,000 exempt. | La. Rev. Stat. § 9:3500 |
| Maine | 6% | No general limit | 15% (under $30K) / T-bill + 4% | Legal rate 6%. No general usury cap for written agreements. Judgment rate 15% for debts under $30,000. | Me. Rev. Stat. tit. 9-B § 432 |
| Maryland | 6% | 24% | 10% | Legal rate 6%. Contract rate up to 24%. First mortgage loans and business loans over $15,000 exempt. | Md. Code Com. Law § 12-103 |
| Massachusetts | 6% | 20% | 12% or 18% | Legal rate 6%. Criminal usury above 20%. Judgment rate 12% (18% if defense was frivolous). Mortgage loans exempt. | Mass. Gen. Laws ch. 271 § 49 |
| Michigan | 5% | 7% | T-note rate + 1% | Legal rate 5%, contract rate 7%. However, most loans are exempt. Business loans, corporate borrowers, and mortgage loans by licensed lenders exempt. | Mich. Comp. Laws § 438.31 |
| Minnesota | 6% | 8% | T-bill secondary market yield | Legal rate 6%. Contract rate cap 8%. Business and agricultural loans over $100,000 exempt. | Minn. Stat. § 334.01 |
| Mississippi | 8% | 10% or Fed rate + 5% | 8% | Legal rate 8%. Contract rate: greater of 10% or 5% above Fed discount rate. Business loans over $5,000 exempt. | Miss. Code § 75-17-1 |
| Missouri | 9% | 10% | 9% | Legal rate 9%. Written contract up to 10%. Business loans and loans over $5,000 may be exempt. | Mo. Rev. Stat. § 408.030 |
| Montana | 10% | 6% above NYC prime rate | 10% | Legal rate 10%. Contract rate capped at 6% above NY prime rate. Business loans over $25,000 exempt. | Mont. Code § 31-1-107 |
| Nebraska | 6% | 16% | T-bill bond equivalent + 1% | Legal rate 6%. Contract rate up to 16%. Business loans of $25,000+ may exceed limit by agreement. | Neb. Rev. Stat. § 45-101.03 |
| Nevada | No limit | No limit | Prime rate + 2% | No usury cap. Effectively deregulated. Legal (default) rate is prime at largest bank + 2%. One of the most lender-friendly states. | Nev. Rev. Stat. § 99.050 |
| New Hampshire | 10% | No general limit | 10% | Legal rate 10%. No general usury cap for written agreements between parties. Consumer credit separately regulated. | N.H. Rev. Stat. § 336:1 |
| New Jersey | 6% | 30% (individual) / 50% (corp) | Post-judgment: court discretion | Legal rate 6%. Criminal usury 30% for individuals, 50% for corporations. First mortgages and business loans exempt. | N.J. Stat. § 31:1-1 |
| New Mexico | 15% | 15% | 15% | Legal rate 15%. No separate contract rate cap. Business and commercial loans exempt from the limit. | N.M. Stat. § 56-8-3 |
| New York | 16% (civil) | 16% | 9% | Civil usury 16%. Criminal usury 25%. Loans over $250,000 exempt from civil usury. Loans over $2.5M exempt from criminal usury. | N.Y. Gen. Oblig. § 5-501; Penal § 190.40 |
| North Carolina | 8% | 16% or T-bill rate | 8% | Legal rate 8%. Contract rate: greater of 16% or T-bill rate. Loans over $25,000 have no express limit. Home loans regulated separately. | N.C. Gen. Stat. § 24-1.1 |
| North Dakota | 6% | 5.5% above 6-mo T-bill rate | 12% or contract rate | Legal rate 6%. Contract rate: 5.5% above 6-month T-bill rate. Judgment rate: lesser of 12% or contract rate. | N.D. Cent. Code § 47-14-09 |
| Ohio | 8% | 8% | Variable (statutory) | Legal rate 8%. Loans over $100,000 exempt. Real estate secured loans may charge up to 8% above Fed Reserve 4th district 90-day commercial paper rate. | Ohio Rev. Code § 1343.01 |
| Oklahoma | 6% | 10% (consumer) | Contract rate or legal rate | Legal rate 6%. Consumer loans capped at 10% unless lender is licensed. Licensed lenders and business loans exempt. | Okla. Stat. tit. 15 § 266 |
| Oregon | 9% | 12% or discount rate + 5% | 9% or contract rate | Legal rate 9%. Loans under $50,000: greater of 12% or 5% above discount rate on commercial paper. Business loans over $50,000 exempt. | Or. Rev. Stat. § 82.010 |
| Pennsylvania | 6% | 6% (under $50K) | 6% | Legal rate 6%. Loans under $50,000 capped at 6%. Residential mortgages and business loans exempt. One of the strictest states for small consumer loans. | 41 Pa. Stat. § 201 |
| Rhode Island | 21% | 21% or prime + 9% | 12% | Usury ceiling: greater of 21% or domestic prime rate + 9%. One of the highest general usury caps in the nation. Alternate rate for specific lender types. | R.I. Gen. Laws § 6-26-2 |
| South Carolina | 8.75% | No limit (by agreement) | Legal rate (variable) | Legal rate 8.75%. Parties may agree to any rate by written contract for non-consumer loans. Consumer loans governed by Consumer Protection Code (max 18%). | S.C. Code § 37-10-106 |
| South Dakota | No limit | No limit | 12% or contract rate | No usury restriction when interest rate set by written agreement. Effectively deregulated. Major credit card banking state. | S.D. Codified Laws § 54-3-1.1 |
| Tennessee | 10% | 24% (formula-based) | 10% | Legal rate 10%. Written agreements may stipulate higher rates under licensed lender provisions. Usury penalties include forfeiture of all interest. | Tenn. Code § 47-14-103 |
| Texas | 10% (no written agreement) | 18% | 18% or contract rate | 10% when no written agreement. 18% ceiling for written contracts. Commercial loans and loans over $250,000 may exceed. Usury ceiling: greater of 18% or weekly rate ceiling. | Tex. Fin. Code § 302.001 |
| Utah | 10% | No limit (by agreement) | 12% or contract rate | Legal rate 10%. Parties may agree to any rate by written contract. Effectively deregulated for written agreements. | Utah Code § 15-1-1 |
| Vermont | 12% | 12% | 12% | Legal rate 12%. General usury cap 12%. Mortgage loans by licensed lenders may be exempt. One of the lower contract rate caps. | Vt. Stat. tit. 9 § 41a |
| Virginia | 6% | 12% | 6% | Legal rate 6%. Written contracts may not exceed 12%. Business loans over $5,000 and mortgage loans by licensed lenders exempt. | Va. Code § 6.2-303 |
| Washington | 12% | 12% or T-bill + 4% | 12% or contract rate | Legal rate 12%. Contract rate: greater of 12% or 4% above 26-week T-bill average. Business loans over $50,000 exempt. | Wash. Rev. Code § 19.52.020 |
| West Virginia | 6% | 8% | 10% | Legal rate 6%. Contract rate 8%. Commissioner of Banking sets real estate loan rates. Business and commercial loans may be exempt. | W. Va. Code § 47-6-5 |
| Wisconsin | 5% | 12% (most loans) | 12% | Legal rate 5%. Various caps by loan type. Corporations exempt from usury limits. Real property mortgages have separate regulations. | Wis. Stat. § 138.04 |
| Wyoming | 7% | No limit (by agreement) | 10% or contract rate | Legal rate 7%. No general usury cap for written agreements. Effectively deregulated. Consumer credit governed by Uniform Consumer Credit Code. | Wyo. Stat. § 40-14-106 |
Important: This table provides general guidance. Many states have complex exemptions based on loan amount, borrower type (individual vs. corporation), loan purpose (consumer vs. commercial), and lender licensing status. Some states tie their rates to variable benchmarks that fluctuate over time. Always consult the specific state statute and, when appropriate, qualified legal counsel before structuring a loan or seller-financed transaction.
Usury laws have a direct and significant impact on anyone who creates or holds a seller-financed mortgage note. When a property seller provides financing to the buyer, the seller becomes the lender and is subject to the usury laws of the state where the property is located. Understanding these laws is critical to structuring a note that is both enforceable and marketable on the secondary market.
Some states provide specific exemptions for seller-financed transactions, particularly when the seller is financing the sale of their own property (as opposed to acting as a professional lender). However, these exemptions are not universal, and the details vary considerably:
When you decide to sell your mortgage note, the interest rate on the note directly affects its market value. Notes with higher interest rates are generally more valuable to note buyers because they generate greater cash flow. However, if the interest rate exceeds the state usury limit, the note may be:
The Dodd-Frank Wall Street Reform and Consumer Protection Act added another layer of regulation to seller financing. Under Dodd-Frank, anyone who offers or negotiates the terms of a residential mortgage loan is considered a “mortgage loan originator” and must comply with federal licensing requirements, unless a specific exemption applies.
The key seller-financing exemptions under Dodd-Frank include:
Critically, even when a seller-financing exemption under Dodd-Frank applies, the transaction must still comply with state usury laws. The usury limit acts as an absolute ceiling that Dodd-Frank does not override.
To create a note that is both legally compliant and marketable on the secondary market, follow these guidelines:
While usury laws are primarily a state matter, several federal laws significantly impact how interest rate limits are applied in practice.
The DIDMCA was a landmark piece of federal legislation that fundamentally changed the usury landscape in the United States. Key provisions include:
Section 85 of the National Bank Act allows national banks to charge the maximum interest rate permitted in the state where the bank is located, regardless of where the borrower resides. Combined with the “most favored lender” doctrine, this effectively allows national banks to choose to be chartered in states with the highest (or no) rate limits.
This Supreme Court decision established that a national bank may charge the interest rate allowed by its home state to borrowers in other states, even if the borrower’s state has a lower usury limit. This decision laid the groundwork for the modern credit card industry’s concentration in states like South Dakota and Delaware.
Federal preemption generally does not apply to private lenders or individuals who provide seller financing. This means that seller-financed notes remain subject to state usury laws in full. The federal preemption benefits are reserved for federally chartered depository institutions and, in some cases, their assignees. This distinction is critical for note holders and sellers to understand: simply because a bank could charge a higher rate does not mean an individual seller-financier can do the same.
The penalties for violating usury laws vary significantly by state, but they can be severe. Understanding these consequences is essential for anyone involved in lending or seller financing.
Several states impose criminal penalties for egregious usury violations:
Beyond the direct legal penalties, a usurious note is essentially unmarketable. Professional note buyers, including firms like Amerinote Xchange, conduct thorough due diligence on every note they purchase. A note that violates usury laws will be declined because the buyer would inherit the legal risk. This means the note holder is stuck with an unenforceable asset that cannot be sold, traded, or used as collateral.
The legal rate is the default interest rate that applies when a loan or debt does not specify a rate. It is typically lower than the usury rate. The usury rate (or usury limit) is the maximum interest rate that a lender may legally charge. Charging above the usury rate triggers civil and potentially criminal penalties.
Yes. When a property seller provides financing to a buyer, the seller is acting as a lender and is subject to the usury laws of the state where the property is located. Unlike federally chartered banks, individual sellers do not benefit from federal preemption of state usury laws.
Nevada and South Dakota have effectively no usury limits for written loan agreements. Additionally, Arizona, Delaware, Idaho, Indiana, Iowa, Maine, New Hampshire, South Carolina, Utah, and Wyoming have no general cap when parties agree to a rate in a written contract, though consumer-specific regulations may still apply.
Generally, yes. Under the National Bank Act (Section 85) and the Depository Institutions Deregulatory and Monetary Control Act of 1980, federally chartered banks and credit unions can charge interest rates up to the maximum allowed by their home state, regardless of the borrower’s state. This is known as “rate exportation.”
The consequences depend on the state. In some states, you may simply need to refund the excess interest. In others, you could forfeit all interest on the loan, or even the principal. Some states distinguish between intentional and unintentional usury, but you should not rely on this defense. The safest approach is to research the applicable rate limit before setting the interest rate.
Dodd-Frank does not set specific interest rate caps, but it requires that seller-financed loans meet certain criteria to qualify for exemptions from loan originator licensing. For the 3-property exemption, the rate must be fixed (or adjustable only after 5 years with caps), and balloon payments are prohibited. The interest rate must also comply with the applicable state usury limit.
Many states include origination fees, points, and other charges in the calculation of the effective interest rate for usury purposes. A loan that appears to have an interest rate below the usury cap may actually exceed it when fees are factored in. This is sometimes called the “all-in” or “effective” rate, and it is the figure that matters for usury compliance.
Technically, yes, if the rate is below the usury limit. However, notes with interest rates very close to the state cap may be harder to sell because buyers perceive higher legal risk. Contact us for a free quote if you are unsure about the marketability of your note.
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