Free Usury Limit Checker

Usury is the practice of charging an interest rate that exceeds the maximum rate permitted by state law. Each state sets its own usury cap - the highest interest rate a lender may legally charge on a loan. Loans that exceed this cap are called "usurious," and the lender may face serious legal consequences, including forfeiture of all interest, loss of the entire principal, or criminal prosecution depending on the state.

Penalties for usury vary by state but can be severe. In many states the lender forfeits all interest owed. In others, the borrower can recover double the interest already paid. Some states void the entire loan agreement, meaning the borrower owes nothing - not even the principal. A few states treat criminal usury as a felony. Even an honest mistake can trigger these penalties, which is why checking your state's cap before signing a promissory note is so important.

Many states carve out exemptions for commercial and business loans, especially for larger loan amounts or when both parties are corporations or LLCs. Federal law also pre-empts state usury caps for national banks and federally chartered credit unions, which is why credit card rates can exceed state limits. However, private individual-to-individual loans and most consumer loans are still subject to state usury caps. Check the exemptions shown for your state - if in doubt, consult an attorney.

In many states, "interest" for usury purposes includes not just the stated rate but also origination fees, points, and certain other charges. Courts may look at the total cost of credit, not just the face rate. If you charge a high flat fee on a small short-term loan, the effective rate could exceed the usury cap even if the stated interest rate appears legal. Always factor in all loan costs when assessing compliance.

Generally, the usury law of the state where the loan is made or where the borrower resides governs the transaction. Some promissory notes include a governing law clause selecting a specific state. Courts may or may not honor such clauses, particularly when the chosen state has no meaningful connection to the transaction or the selection appears intended to evade usury laws. If parties are in different states, it is safest to comply with the cap of the most restrictive state involved.

No. Usury limits are set by law to protect borrowers, and in most states they cannot be waived by contract. Even if a borrower signs a promissory note that says "the parties agree this rate is not usurious," a court can still strike the interest clause and impose penalties. The only way to avoid a state's cap is through a recognized statutory exemption - such as a commercial loan exemption - not a private waiver.

A usury savings clause is a standard provision in a promissory note that automatically reduces the interest rate to the maximum legal rate if the stated rate is ever found to exceed state law. It acts as a safety net: if a calculation error, change in law, or court ruling makes the rate usurious, the clause prevents the lender from forfeiting all interest or having the note voided. All promissory notes generated on YourPromissoryNote.com include a usury savings clause.

No. This tool is for general informational purposes only. Usury law is complex - exemptions, federal pre-emption, choice-of-law clauses, and the treatment of fees all affect the analysis. State laws also change. Nothing on this page constitutes legal advice, and you should consult a licensed attorney in your state before finalizing any loan transaction if you have specific questions about compliance.