Maximum Legal Interest Rate on a Loan by State
Every state sets a usury cap, the highest interest rate a private lender may legally charge. Go over it and you can lose far more than the extra interest. This guide explains how the caps work, lists the nine states with no cap, and gives the general written-contract rate for all 50 states plus the District of Columbia.
What usury law is and why it exists
Usury law is the body of rules that caps the interest a private lender may charge on a loan. The idea is old. Long before modern consumer-protection statutes, lawmakers worried that a lender with money and leverage could trap a borrower in need into a rate that could never realistically be repaid. A usury cap draws a hard line: above this rate, the law will not help you collect, and it may punish you for trying.
Today the caps live in each state's code, which is why the number changes when you cross a state line. They sit alongside disclosure rules, licensing requirements, and unconscionability doctrine as one layer of consumer protection. For someone writing a promissory note between two private people, the usury cap is usually the single most important legal limit on the deal. Set the rate below the cap and the note is enforceable. Set it above, and you put the whole loan at risk.
Contract rate vs legal (default) rate
Most states actually have two numbers, and people often confuse them. The first is the contract rate cap, the highest rate the parties may agree to in writing. The second is the legal rate, sometimes called the default or judgment rate, which applies automatically when the note is silent on interest. The legal rate is usually lower, and in many states it sits near 6%.
The practical takeaway is simple. If you want a particular rate, write it into the note. A note that says nothing about interest does not earn the higher contract maximum. It earns only the state's default rate, and in some readings it earns no interest at all until a judgment is entered. The table further down shows the general written-contract cap, the number that matters when you are setting a rate two parties have agreed to, not the silent default.
The exemptions that swallow the rule
Here is the part that surprises most people. The biggest lenders in the country are largely exempt from state usury caps. Banks, credit unions, and licensed consumer-finance companies operate under their own rate rules. Credit card issuers can charge rates that would be plainly illegal on a private note, because a line of Supreme Court cases starting with Marquette lets a national bank export the rate allowed by its home state to borrowers everywhere. Most business and commercial loans are exempt too, or are subject to a far higher ceiling.
Strip all of those out and you are left with the loans that usury caps actually govern: private and family loans. The parent lending a child a down payment, the friend financing a used car, the business owner carrying a former partner's buyout. Those are exactly the notes YourPromissoryNote.com users write, which is why the cap is not an academic point. If the cap bites anyone, it bites the private lender. That makes checking your state number a basic step, not a formality.
The nine states with no general cap
Nine states set no general usury cap on a written contract between private parties: Arizona, Idaho, Maine, Nevada, New Hampshire, New Mexico, South Dakota, Utah, and Wyoming. In these states, two parties may agree in writing to any rate they choose, and the law will generally enforce it.
"No cap" does not mean "no limits." A court in a no-cap state can still refuse to enforce a rate it finds unconscionable, and it can throw out a loan tainted by fraud, duress, or deceptive terms. The rate also still has to be stated clearly in the note to apply. So even in a no-cap state, the smart move is the same: put the rate in writing, keep it within the range a reasonable person would accept, and avoid anything that looks like overreaching against a vulnerable borrower.
How to find your state's number
To set a legal rate on a private note, you need the general written-contract cap for the state whose law governs the loan, usually the state where the borrower lives or where the loan is made. The table below lists that figure for all 50 states and DC, drawn from our audited state requirements data, with a short note on how each cap works. Many states tier the cap by loan size or carve out exemptions, so read the note column, not just the headline percentage.
For a fast single-state answer, our free Usury Limit Checker returns the cap, the default rate, and the penalty for one state at a time. Use the tool for a quick check and the table here when you want to compare states or see the whole picture at once.
Maximum legal interest rate by state
| State | General contract rate cap | How the cap works (notes) |
|---|---|---|
| Alabama | 8% | 8% by written contract on loans under $2,000; loans of $2,000 or more may bear any rate the parties agree to in writing. 6% legal rate absent a written contract. |
| Alaska | 10% | Greater of 10% or 5 points above the Federal Reserve discount rate for loans of $25,000 or less; larger loans may bear any agreed rate. 10.5% legal rate when no rate is agreed. |
| Arizona | No general cap | No statutory usury cap |
| Arkansas | 17% | 17% maximum |
| California | 10% | 10% for personal loans by written contract |
| Colorado | 12% | 12% per year on consumer loans; licensed supervised lenders may charge tiered rates up to 36% on the first $1,000. Rates of 45% or more are criminal usury. |
| Connecticut | 12% | 12% maximum |
| Delaware | 5% | 5% above Federal Reserve discount rate |
| District of Columbia | 24% | 24% maximum |
| Florida | 18% | 18% for loans under $500,000; 25% for larger |
| Georgia | 16% | 16% on loans of $3,000 or less; 7% legal rate absent a written contract. Loans of $3,000 to $250,000 may set any agreed rate in writing. |
| Hawaii | 12% | 12% maximum |
| Idaho | No general cap | No statutory usury cap |
| Illinois | 9% | 9% legal rate; most business, corporate, and real-estate-secured loans may carry any agreed rate in writing. |
| Indiana | 21% | 21% under UCCC |
| Iowa | 6.25% | Floating cap published monthly by the Iowa Superintendent of Banking: 10-year Treasury average plus 2 points (6.25% for June 2026). Business and agricultural loans, and personal loans above the indexed threshold, may bear any agreed written rate. 5% legal rate absent a written contract. |
| Kansas | 15% | 15% or 4% above T-bill rate |
| Kentucky | 19% | 19% or 4% above Federal Reserve rate |
| Louisiana | 12% | 12% maximum |
| Maine | No general cap | No general usury cap |
| Maryland | 24% | 8% by simple written agreement; up to 24% for unsecured loans and most loans not secured by residential real estate, subject to Com. Law 12-103 conditions. 6% legal rate absent a written contract. |
| Massachusetts | 20% | 20% criminal usury threshold |
| Michigan | 25% | 25% criminal usury threshold |
| Minnesota | 8% | 8% maximum agreed rate; the cap does not apply to written loans of $100,000 or more. |
| Mississippi | 10% | 10% or 5% above Federal Reserve rate |
| Missouri | 10% | 10% maximum |
| Montana | 15% | 15% or 6% above NY prime rate |
| Nebraska | 16% | 16% maximum |
| Nevada | No general cap | No statutory usury cap |
| New Hampshire | No general cap | No general usury cap for non-consumer loans |
| New Jersey | 16% | 16% civil maximum; 30% criminal threshold |
| New Mexico | No general cap | No statutory usury cap |
| New York | 16% | 16% civil maximum; 25% criminal threshold |
| North Carolina | 16% | 16% on loans of $25,000 or less; 8% legal rate absent a written contract. Loans over $25,000 may set any agreed rate in writing. |
| North Dakota | 12% | 5.5% above the average rate on six-month US Treasury bills (6% legal rate absent a written agreement). |
| Ohio | 8% | 8% maximum |
| Oklahoma | 10% | 10% maximum (6% absent a written agreement); licensed lenders may charge more under the Consumer Credit Code. |
| Oregon | 12% | 12% or 5% above Federal Reserve rate |
| Pennsylvania | 6% | 6% maximum for loans under $50,000 |
| Rhode Island | 21% | 21% or 9% above prime rate |
| South Carolina | 12% | No general usury cap for private one-time lenders; a lender regularly in the business of making consumer loans is capped at 12% unless licensed as a supervised lender. 8.75% legal rate absent a written agreement. |
| South Dakota | No general cap | No statutory usury cap |
| Tennessee | 10.75% | Formula rate: 4% above the weekly average prime loan rate, announced weekly by the Tennessee Dept. of Financial Institutions (10.75% as of May 2026). 10% effective rate absent a written contract. |
| Texas | 18% | 10-18% depending on loan type |
| Utah | No general cap | No statutory usury cap |
| Vermont | 12% | 12% maximum |
| Virginia | 12% | 12% maximum |
| Washington | 12% | 12% or 4% above T-bill rate |
| West Virginia | 8% | 8% maximum |
| Wisconsin | 12% | 12% maximum |
| Wyoming | No general cap | No general usury cap |
Penalties for exceeding the cap
The penalty for usury is what makes the cap worth respecting, because it is rarely a small fine. The mildest common penalty is forfeiture of interest: the lender loses the right to collect any interest and recovers only the principal. Harsher states make the lender forfeit a multiple of the interest, often double or triple what was charged. The most severe civil penalty voids the entire debt, so the borrower keeps the money and owes nothing at all.
A subset of states go further and treat egregious overcharging as a crime. States with criminal or especially severe usury penalties include New York, California, Florida, Minnesota, New Jersey, Massachusetts, Pennsylvania, Colorado, Connecticut, Arkansas, North Dakota, Rhode Island, and West Virginia. New York's criminal usury statute and Arkansas's constitutional cap are the best known. Because the downside is so lopsided, even a few points over the line is never worth the risk on a private note.
Choice-of-law and out-of-state borrowers
When the lender and borrower live in different states, people sometimes try to write the note under whichever state has the friendliest cap. It does not work as cleanly as that. Courts respect a choice-of-law clause only when the chosen state has a genuine connection to the loan, such as where a party lives or where the money changes hands, and only when applying that law would not violate a strong public policy of the borrower's home state.
A state's usury cap is usually treated as exactly that kind of strong public policy. So a lender who picks a no-cap state purely to escape a borrower's home-state limit often finds a court applying the home-state cap anyway, and finding a usury violation in the process. If your loan crosses state lines, do not assume you can shop for the best rate. Our guide on charging interest when the borrower is out of state walks through how courts actually decide which law controls.
Default interest and late fees count toward the cap
A rate that is legal on its face can still become usurious once you add everything up. Many notes carry a higher default interest rate that kicks in after a missed payment, plus late fees, plus other charges. Courts in many states fold those charges into an effective rate, and if the combined cost crosses the cap, the note can be usurious even though the base rate was perfectly legal.
This catches careful lenders off guard. A 10% base rate in a 12% state looks safe, but bolt on an 18% default rate and a stacked late fee and the effective cost can blow past the limit during a default. The fix is to size the default rate and fees with the cap in mind and to keep them reasonable. Our guide on late fees, default interest, and grace periods covers how to set those numbers without tripping the usury line.
A separate federal issue: the IRS applicable federal rate
Usury is about charging too much. There is a separate federal problem that comes from charging too little. The IRS publishes a monthly applicable federal rate (AFR), the minimum interest a loan should carry to be treated as a real loan rather than a gift. On a family loan with a below-AFR rate, the IRS can impute interest, treating the lender as if they had earned the AFR and taxing it accordingly, and the forgone interest can count against the gift tax.
This is a tax issue, not a usury issue, and the two pull in opposite directions: state law caps the ceiling, the IRS sets a floor. Most private notes sit comfortably between the two. If you are lending to a relative at a low rate, see our guide on imputed interest and the IRS AFR for family loans to make sure your rate clears the federal minimum while staying under the state cap.
How to keep your note compliant
Compliance comes down to three habits. First, state the rate clearly in the note as an annual percentage, so there is no argument about what the borrower agreed to and no risk of falling back to the bare default rate. Second, include a usury savings clause, a short provision stating that if any charge is ever found to exceed the legal maximum, the rate is automatically reduced to the highest lawful rate and any excess is credited to principal. Courts in many states honor that clause and use it to save an otherwise valid note.
Third, check the cap before you sign, not after a dispute starts. Look up the general contract cap in the table above, confirm your base rate plus any default rate and fees stay under it, and verify the figure for the state whose law governs the loan. Every note created on YourPromissoryNote.com is built around the governing state and includes a usury savings clause, so the rate you choose is checked against the right limit from the start.