Even within families, there is an intra-family (loans between family members) interest rate that is applicable. That intra-family interest rate is defined by the IRS. (A family member could offer a "no interest loan", but that leads to financial complications.)
Read my articles about intra family loans on my website: www.attorneybarbaradalvano.weebly.com)
More About Usury and Usury Laws
Interest rates charged for loans vary from one financial institution to another depending on the type of financial institution; the location of the financial institution; the economy and other factors, such as the collateral that a person offers for the loan to be accepted.
The term Usury is the charging of unusually high interest rates. But what defines "unusually high" as usury?
When does an interest rate become usury? If an individual is willing to pay 110% interest rate for a loan, is that acceptable?
The brief answer is No. According to most state laws, there is a limit (ceiling/cap) to the interest rate that can be charged when a person borrows money.
Most states have what is termed usury laws. The state usury law may define the maximum rate of interest that a lender can charge, but there are exceptions.
In Colorado,for example, the Consumer Credit Code 15-12-103 of the Colorado Revised Statutes (2019) defined the cap of 45% interest rate on most loans. There are exceptions. Those exceptions must be carefully considered.
Also, prior legal discussion and cases exhibit the difficulty in how the interest rate was being mathematically calculated (One such case: Blooming Terrace No1 LLC v. KH Blake St LLC and Kresher Holding LLC- Colorado Supreme Court, 2017)
The federal government does not establish a single maximum interest rate and usury laws vary by state.
Note: Any loan agreement you sign should define which state laws will govern the loan agreement, whether it is the state where the loan originated; the state where you live and signed the agreement or the lenders "home" state. This is an important fact!
Further difficulties can arise when there are exemptions/exceptions to state usury laws, for example - for some types of credit such as credit card debt, home equity or commercial or business loans the state usury law may not be applicable depending on the state.
For Our Active Military - Know Your Rights about the Money You Borrow
The Military Lending Act (MLA) is aimed at protecting our active military from predatory lending and high interest on loans.
( Note that spouses and certain dependents of active military are also covered under the MLA.)
Active military should consult the JAG (Judge Advocate General Corps) Legal Assistance Office before signing loans to know if they are covered by the MLA.
From the JAG website: "Make sure that you understand how much interest you are paying, and how much it will cost BEFORE you sign any contract. Make sure you know how often interest is compounded, or added to the principal--the more times interest is compounded, the more it will cost you. If you do not understand the contract, bring it to a legal assistance attorney BEFORE you sign it."
It is beyond the scope of this article to cover all aspects of usury and the usury laws of each state.
When in doubt, seek professional advice before signing loan agreements.
Remember, the loans you incur can affect your life, your retirement and your estate planning goals.
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