Legal Definitions - lawful interest

Lawful Interest refers to the rate of interest that is permitted by law to be charged or paid on a debt, loan, or other financial obligation. This term signifies that the interest rate complies with all applicable statutes and regulations, including state usury laws that set maximum allowable interest rates, as well as any specific rates mandated for judgments, late payments, or other statutory contexts. It also includes interest rates agreed upon by parties in a contract, provided those rates do not exceed legal maximums.

Here are some examples illustrating lawful interest:

• A small business owner secures a loan from a bank to expand operations. The loan agreement specifies an annual interest rate of 7%. This rate is well within the maximum interest rates permitted by the state's lending laws and is a standard commercial rate for such a transaction.

  Explanation: The 7% interest rate is considered "lawful interest" because it adheres to all relevant state and federal regulations governing commercial loans and does not exceed any statutory limits, thereby making it legally permissible to charge.

• A tenant signs a lease agreement that includes a clause stating that any rent payments received more than five days late will incur a late fee calculated as 1% of the monthly rent per day, up to a maximum of 10% of the monthly rent. This specific late fee structure and its maximum are explicitly allowed under the state's landlord-tenant laws.

  Explanation: The interest charged on overdue rent, structured as a late fee, constitutes "lawful interest" because the terms and maximums are clearly defined in the lease and comply with the specific provisions permitted by state law for such charges.

• Following a successful personal injury lawsuit, a court awards a plaintiff $100,000 in damages. The court also orders that this judgment will accrue interest at a rate of 5% per year from the date of the judgment until the full amount is paid. This 5% rate is the standard statutory rate for post-judgment interest in that jurisdiction.

  Explanation: The 5% annual interest applied to the court judgment is "lawful interest" because it is a rate specifically established and authorized by state statute for court-ordered financial awards, ensuring its legal validity and enforceability.