When you take out a private loan from a bank or other financial institution, you expect to pay interest. The interest you pay for a loan depends on many factors such as the current interest rate and your own personal credit history. The law limits the amount of interest a bank or others can charge for interest. If you are obtaining a loan, you will want to know whether usury laws apply to private loans.
What are Usury Laws?
Usury is the interest that a lender charges a borrower that is over the lawful maximum rate. Usury laws are in place to protect consumers from exorbitant interest rates on various types of loans, such as credit cards, payday loans, and personal loans. Laws apply to consumers and others who borrow from creditors. Without such laws, a lender could potentially charge any amount for a loan, thus taking advantage of those who are in desperate need of funds.
Do Usury Laws Apply to Private Loans?
Private loans are loans that are made between individuals and private lending institutions. These types of loans differ from commercial or governmental loans. In addition to loans between individuals and lending companies or banks, usury laws apply to loans that are made between individuals. For example, if you provide a written loan to your friend and include interest that is above the legal limit, the loan could be considered usurious. This applies as long as you are able to prove the three main elements of usury.
Elements of Usury
There are three basic elements of usury. There must be a loan, there must be an agreement to repay the money, and the agreement includes interest that is higher than the legal allowance. The lender must have given a usurious interest rate. Regardless of whether you agree to the interest rate, the lender may not be able to collect interest on a usurious loan. When a private loan is made with an interest rate above the legal cap, the loan is considered usurious. An experienced attorney will help litigate matters that involve usurious loans.
New Jersey Civil Usury Laws
New Jersey has both criminal and civil usury laws in place. Law enforcement can bring criminal charges when someone breaks the criminal usury law. New Jersey law places usury limits on loans, with a maximum rate allowed of 50% for corporations and 30% for other borrowers. New Jersey civil usury laws are determined through the Department of Banking and Insurance formula. Generally, the law limits interest to no more than $6.00 per $100 borrowed for a year where there is no contract. Where a contract exists, the interest cannot be more than $16.00 per $100 borrowed. Loans can be made at any interest rate as long as it is below the current legal limits.
When you obtain a credit card or loan from a bank or financial institution, you receive a contract that includes the amount of interest on the loan and how interest is calculated. When you obtain a personal loan from a friend or family member, you should be sure to put it in writing. Include the amount of the loan as well as the amount of interest you will pay. This will help ensure that the loan is not usurious.
Are There Exceptions to Civil Usury Laws?
There are some exceptions to usury laws. Importantly, according to New Jersey law, usury laws do not apply to loans to corporations, limited liability companies, and limited liability partnerships. Since these are commercial loans, they are not covered by civil usury laws. A person who guarantees a corporate loan obligation is not subject to civil usury laws. The law exempts first loans that are made for $50,000 or more for real property of up to six units where at least one of the units is used for non-residential purposes.
When it comes to credit card companies, it is important to note that they may have some leeway regarding the amount of interest they charge. Credit card companies are allowed to follow the maximum interest rates in the state where they are incorporated. Therefore, some credit card companies are incorporated in states where the usury laws allow the highest rate of interest. For example, many companies incorporate Delaware since they may have less restrictive usury laws.
To learn more about usury laws and how they apply to your situation, contact us today at Snellings Law, LLC at (973) 265-6100.
Teaser: There are laws in place in New Jersey that limit the amount of interest that can be charged for loans. Usury laws apply to private loans that are made for credit cards, loans, and other reasons.
Summary: The law limits the amount of interest that can be charged on a loan. Usury laws apply to private loans and all types of loans except commercial loans. Private lenders are limited to the amount of interest they may charge based on New Jersey law.