Legal Definitions - usurious

The term usurious describes a loan, a lender, or a lending practice where the interest rate charged is excessively high and exceeds the maximum legal limit set by law. It refers to the act of charging interest rates that are considered illegal due to their exorbitant nature.

Here are some examples to illustrate what it means for something to be usurious:

• Example 1: Payday Loan with Excessive APR

  Imagine a person in urgent need of cash takes out a short-term loan of $300 from a lender. The lender requires a repayment of $390 in two weeks. When calculated as an Annual Percentage Rate (APR), this equates to an APR of over 780%. If the state where this transaction occurs has a law capping the maximum allowable APR for such short-term loans at, for instance, 36%, then the terms of this loan would be considered usurious because the interest rate far exceeds the legal limit.

• Example 2: Private Lender Charging Exorbitant Rates

  A small business owner, struggling to secure traditional bank financing, borrows $5,000 from a private individual. The private lender demands repayment of $7,500 within three months. This arrangement implies an extremely high effective annual interest rate. If the legal maximum interest rate for private loans in that jurisdiction is 15% per year, the private lender's demand for such a disproportionately high return would make the loan agreement usurious, as it significantly violates the established legal interest rate ceiling.

• Example 3: Car Title Loan with Unlawful Monthly Interest

  A consumer, needing funds quickly, uses their car title as collateral for a loan. The lender charges an interest rate of 20% per month on the loan amount. While car title loans often carry higher interest rates than traditional loans, if the state law explicitly caps the maximum monthly interest rate for such secured loans at 10%, then the 20% monthly charge would be deemed usurious. The lender is charging an interest rate that is double the legally permissible amount, making the loan terms illegal.