Contract Questions and Answers

What is legal interest?

Please see specific state for details and/or differences.

ALABAMA
Regulation for usurious charges may be found under Code Section 8-8-12. Also see Consumer Finance Chapter 19 and Title 5 of the Mini Code. The interest rate on a note under Section 8-8-10 is 12% per annum on judgments. Under Sections 8-8-4, 15% is permissible on amounts not less than $100,000.00. -Education. Gambling is regulated under Sections 8-1-150 to 8-1-152. In Alabama, money paid on an illegal contract may be recovered pursuant to Section 8-1-131. Forgery is regulated under Section 13A-9-3 and Fraud under Section 8-9-10.

ALASKA
The Usury Code, Section 45.45.010, sets the legal rate of interest at 10.5%, unless there is an acceptation under Section 45.45.010(B). Pursuant to Section 45.45.020, there can be no rate of interest higher than the amount authorized in Alaska Code Sections 45.45.010 to 45.45.070.

ARIZONA
The legal rate of interest in the state of Arizona is 10% per annum unless a different rate is specified in the contract and is permissible. Usury is the charging of an interest rate where any person receives sum for a loan or forbearance of money that is greater than that which is permitted by law. In such cases, such individuals shall forfeit all interest (see Section 44-1202 of the Arizona Revised Statute).

ARKANSAS
“Interest and usury” is a matter covered under Subtitle 5 entitled “Contracts, Notes and Other Commercial Instruments.” See Chapter 57 specifically.

CALIFORNIA
No extra details.

COLORADO
The Usury Code may be found in Section 5-12-103. The base rate of interest is 8%; however, individuals may agree to rates as long as rates do not exceed 45% per annum. As indicated above, the legal rate is 8% per annum. See Section 5-12-101.Statutory interest is found under Section 5-12-102.

CONNECTICUT
The legal rates of interest are found under Section 37-3a in the state of Connecticut. See also Title 37 (Chapter 673) regarding the rates of interest. The legal rate of interest, pursuant to Section 37-1, is 8%. Certain other rates of interest may be charged so long as the rates do not exceed the rate of interest permitted by law.

DELAWARE
The legal rate of interest is 5% over the federal reserve discount rate. Where there is an agreed sum of interest in writing, the lawful rate may be up to 5% over the federal reserve discount rate; see Section 6-2301. Usury is charging an illegal rate of interest. Usury is regulated under various sections of the Delaware code. See Section 2304(b).

FLORIDA
For the appropriate rates of interest allowable in the state of Florida and in regard to the rates of interest that may be charged, see Section 687.01 et. seq.

GEORGIA
The legal rate of interest in the state of Georgia is 7%. The rate is set forth in Section 57.101. The penalties for charging an excessive rate of interest may be found in Section 57.112.

HAWAII
The standard rate of interest on judgments in the state of Hawaii is 10%. (See Code Section 478-3.) Also, it should be noted that the rate of interest in Hawaii is 10%, pursuant to Section 478-2, when a different rate of interest is not specified. Certain rates of interest may specifically relate to written contracts. See Section 478-4.

IDAHO
The legal rate of interest in the state of Idaho is $.08 on the One Hundred by the year or, in other words, 8%. See Code Section 28-22-104. Other rates of interest may be specified in contracts, providing they do not exceed the rate of usury.

ILLINOIS
Usury is essentially the charging of an illegal rate of interest. The appropriate interest that may be charged in the state of Illinois is governed by various state statutes. See particularly 815ILCS205/0.01 et. seq. The legal interest on judgments is governed by 735ILCS5/2-1303 and 735ILCS5/12-109. A usurious loan is one in which interest rates are determined to be in excess of those permitted by the usury laws.

INDIANA
The legal rate of interest is that which is permitted by law, and individuals or entities charging interest are regulated pursuant to those laws. As to the regulation of interest rates regarding banks and financial institutions, see Section 28-1-11-13. In regard to the rate of interest on judgments, see Section 24-4.6-1-101. The rate of interest on judgments in Indiana is 8%.

IOWA
The rate of interest in Iowa on judgments is 7% prior to January 1, 1981 and 10% thereafter, unless there is a different rate specifically set forth by statute. See Section 535.2 of the Code of Iowa. Interest begins to run on the date the action was commenced.

On finance charges, the interest is 2% of the loan principal where the loan processing fee on a loan for the purchase of a dwelling is permitted. See Section 535.8. Under Section 535.8, 1% of the amount refinanced on the loan processing fee is allowed. Where the loan is from an industrial loan company, 10% is computed as an add-on or discount method. (See Section 536.A.23(1).)

On accounts receivable, in the absence of a written agreement, a transaction up to $35,000 may result in a 21% interest with proper notice. A transaction over $35,000 has no maximum level with proper notice if it is a closed-ended transaction. An open-ended transaction is 15% on the initial $500 and 15% on the balance, providing there is proper notice. See Section 535.11. However, in regard to automobile installment sales, a rate of 21% is allowable on new automobiles, while 24% is permitted on vehicles not more than two (2) years old. For vehicles that are over two (2) years old, the 27% rate of interest is permitted.

Where suit is predicated upon usury, the judgment will be for the principal debt without interest or cost, and the judgment will be entered in favor of the state against the defendant for 8% per annum, so long as it remains unpaid. See Section 535.5 of the Code of Iowa.

KANSAS
For usury and stated interest rate, see Section 84-9-201. For interest on judgments, see Section 16-205, and for the interest of a contract rate, see Section 16-207.

KENTUCKY
Interest is governed under various sections of the applicable codes that would apply to loaning and funds. Criminal syndicates are governed under Section 506.120. Recovery of interests is found in Section 413.140. For petty loan companies, Section 288.620 should be consulted.

LOUISIANA
A usury is a charge of illegal rate of interest. Rates of interest are governed in the state of Louisiana under Civil Code Section 2924. After January 1, 1988, the rate of judicial interest is published annually and set by the Commissioner of Financial Institutions, in conjunction with the time or reference rate average of the financial institutions including: the Chase Manhattan City Bank, Morgan Guarantee & Trust Company of New York, Manufacturer’s Hanover Trust Company and the Bank of America National Trust. This is how the state of Louisiana regulates the rate of judicial interest as published annually.

MAINE
The legal rate of interest is 8% in the state of Maine. The 8% rate is what is paid on judgments and as determined by the U.S. Treasurer pursuant to 14 1602. A contract may specify a different rate of interest; however, it may not exceed specified rates which are determined to be usury in the state of Maine. Usury is charging an illegal rate of interest. A usurious loan is one whose interest rates are determined to be in excess of those permitted by the usury laws. For usury law in Maine, see Section 11-9-201.

MARYLAND
Legal interest is defined under CL-12-101, and usury is defined at CL-12-101. The general legal rate of interest under CL-12-102 is 6%. Usury is known to be the charging of an illegal rate of interest. A usurious loan is one whose interest rates are determined to be in excess of those permitted by the usury laws.

MASSACHUSETTS
Legal interest varies as to the form of transaction in the Commonwealth of Massachusetts. For example, sales of finance companies are regulated pursuant to 255D:11, 29, 30. Open-ended credit plans are regulated under Chapter 140: 114B. For finance charges relating to motor vehicles, see 255B:14, 21, 22. As to usury, see 107:3; 271:49. Usury is appropriately defined as charging an illegal rate of interest. It has also been defined as an unconscionable and exorbitant rate or amount of interest charged.

MICHIGAN
The legal rate of interest in Michigan shall not be over 7% per annum; contract rates may differ. Section 438.32 of the Michigan Code provides penalty for usurious rates of interest that may be charged. Section 438.31 provides the basis for simple interest in the state of Michigan. Usury is defined as charging an illegal rate of interest. A usurious loan is one whose interest rates are determined to be in excess of those permitted by the usury laws of the state.

MINNESOTA
The legal rate of interest is 6% (Code Section 334.01). Interest on judgments is determined as of the 20th of December of the prior year. Interest is determined by the court administrator based upon a secondary market yield for the most recent month on one year U.S. Treasury Bills rounded out to the nearest percent. (See Section 549.09.) A written contract may provide for any rate up to and including 8%, and the contract must bear the same rate after maturity as it does before maturity. Finance charges on loans may carry an interest rate up to 19% or 18% for open-ended credit, such as in the case of credit cards on a 365 day year. Various code sections relate to this interest and other interest that may be charged (see Section 48.194, 51A.385, 53.04, 52.14, 334.01, 334.012 and 334.019).

MISSISSIPPI
The legal rate of interest in Mississippi is 8% per annum as to interest on money. See Section 75-17-1 to Section 75-17-11. The interest is also allowed to be 10% per annum or 5% per annum above the discount rate.

MISSOURI
In Missouri, when no rate of interest is agreed upon, the rate of interest is 9%. See Section 408.020. For dissertation and code regulations relative to interest, see Section 408.015 et. seq. and 408.450 et. seq.

MONTANA
Interest in Montana may be charged in an agreement between parties; however, such interest may not exceed 15% or an amount that is 6 percentage points per annum above the prime rate of the New York banks. See Section 31-1-107. For penalties, see Section 31-1-108 of the Code of Montana.

NEBRASKA
The legal rate of interest in the state of Nebraska was 12% per annum from 3-9-80 to 8-31-83. The rate changed to 6% commencing September 1, 1983 unless a greater rate, not to exceed the rate in Section 45-101.03 is set forth in a contract. The rate shall not exceed 16%.

NEVADA
The legal rate of interest, if there is no expressed written provision to the contrary in the contract, is 12%. See Section 99.040 of Nevada Code. Pursuant to Section 99.050, parties may agree for the payment of any rate of interest and for compounding interest on money due on any contract. If no rate of interest is provided by contract or specified in a judgment, a judgment shall draw interest from the time the summons and complaint is served until the judgment is satisfied at a rate that is equal to the prime rate at the largest bank in Nevada as ascertained by the Commissioner of Financial Institutions. (See Section 17.130.)

NEW HAMPSHIRE
Legal interest may be at any rate; however, it is computed at 10%, unless a different rate is expressly stipulated in writing. Legal interest on judgments is covered by Chapter 524, Section 1 et. seq. If loans are made up to $10,000, it is necessary to secure a license from the bank commissioner of the state of New Hampshire. Interest on open and closed-in loans of $10,000 or less is governed by Chapter 399A, see Section 3. In New Hampshire, there is no usury law; however, interest is regulated under Chapter 336 and Chapter 524.

NEW JERSEY
The legal rate of interest is the state of New Jersey is 6% per annum. If a written contract is provided, the rate of interest can be 16%, subject to an increase of the regulations of the Commissioner of Banking. Usury is considered to be interest that is beyond the legal rate or, in other words, the charging of an illegal rate of interest. See Title 31, Chapter 1, Section 3 of the New Jersey Revised Statute.

NEW MEXICO
The legal rate of interest in New Mexico is 8-3/4%; however, for intentional willful acts, it is 15%. The interest rates may be fixed by contract providing those rates of interest do not exceed the rates that constitute usury in the state of New Mexico. Usury is both a criminal and civil matter in the state of New Mexico and is a misdemeanor under the criminal statute, see Section 56-8-14. Penalties may be imposed in the civil courts with twice the interest if the suit is brought within a period of time of two years, see Section 56-8-3. Usury is the charging of illegal interest.

NEW YORK
The maximum rate of interest on loans or forbearance for purchase of goods, money or things is 16% per annum, see Section 14A of the Banking Law and Section 5-501 of the General Obligations Law. Section 108(1) to (5-A) of the Banking Law also applies. Usury is a charging of an illegal rate of interest, and a usurious loan is one whose interest rates are determined to be in excess of those permitted by usury laws. For specific reference to usurious bonds, bills, notes, etc., see Section 5-511 of the General Obligations Law and Section 5-521 of the General Obligations Law. The violation of the Retail Installment Sales Law is a misdemeanor pursuant to Section 414(1) of the Personal Property Law.

NORTH CAROLINA
The legal rate of interest in the state of North Carolina is 8%; see Section 24-1 of the General Statutes of North Carolina. However, parties may contract in writing for a different rate of interest as long as the rate of interest does not exceed the rate announced by the Commissioner of Banks for the calendar month after the rate was last published. This is providing it is a non-competitive rate as of the 15th day of the month for six month U.S. Treasury Bills, plus 6% rounded to the nearest 1/2 of 1% or 16%, whichever is greater where the principal amount is $25,000 or less. Additionally, where the principal amount involved is more than $25,000, the parties may agree upon a different rate of interest. The penalty for usury is forfeiture of all interest. Usury is the charging of an illegal rate of interest.

NORTH DAKOTA
The legal rate of interest is 6% in the state of North Dakota; see Section 47-14-05 of the North Dakota Century Code. However, it is possible for individuals to contract for a different rate of interest. If a contract rate is different from the legal rate of interest, such rate may not exceed 5-1/2% above the current cost of money as affected by the average rate of interest payable on U.S. Six Month Treasury Bills in effect for the state of North Dakota for six months immediately prior to the month in which the transaction has occurred. A minimum interest charge of $15 may be made. Interest may not be compounded.

OHIO
The maximum rate of interest that is permitted to be charged on a note is set at 18%, see Section 1343.01(A) of the Ohio Revised Code. For small loans of $5,000 or less, the interest is regulated by the Ohio Revised Code, Section 1321. In such cases, charge of interest, according to actuarial method, may not exceed 28% annually on the unpaid balance up to $1,000 and 22% on any unpaid balance exceeding $1,000. Pre-computed loans may be repayable in substantially equal and consecutive monthly installments of principal and interest combined with certain exceptions. Default charges and deferment charges may also be included. See Sections 1321.13(C)(1)(2) and Section 1321.13(D) of the Ohio Revised Code. Second mortgages may bear interest up to 21% per year on unpaid balances.

OKLAHOMA
In Oklahoma, the legal rate of interest is 6% as permitted by contract. Any rate may be authorized by law that is in effect or subsequently enacted by the legislature, see Section 15-266 of the Oklahoma Statutes. The maximum legal interest on unsupervised consumer loans is 10%. The maximum rate on supervised consumer loans is 21% on the unpaid balance or 32% on the first $720, 21% on the next $1,680, and 15% on the amount of the unpaid balance over $2,400. See Sections 14A-3-201 and 14A-3-508A of the Oklahoma Statutes.

OREGON
The legal rate of interest charged by private and commercial lenders on ordinary loans may be as agreed between the parties in regard to the transaction, except for certain loans $50,000 or less. See Section 82-010, Section 708.480, 723.502 and 725.340 of the Oregon Revised Statutes. If an agreement is not reached, then the rate of 9% applies to all sums once same become due. This is providing there is no specified rate of interest. See Section 82-010. On installment loans and open credit, Banks and National Banks may charge a late charge of greater than $5 or 5% of any late installment. See Section 708.480. On business or agricultural loans of $50,000 or less, the annual rate may not exceed the greater of 12% or 5% in excess of the discount rate including any surcharge on the discount rate on a 90-day commercial paper in effect pursuant to the Federal Reserve Bank and the Federal Reserve District where the person making the loan is located.

PENNSYLVANIA
The legal rate of interest in Pennsylvania is 6%, and this is the maximum lawful rate of interest for a loan or use of money in the amount of $50,000 or less where no express contract has been made for a lower rate. See Section 41-201 and 41-202 of the Pennsylvania Statute. Consumer Discount Companies providing loans of $15,000 or less may charge 9-1/2% interest for the first 48 months and 6% thereafter or 2% per month on unpaid principal balances. See Pennsylvania Statutes, Section 7-6213 and 7-6217.1.

RHODE ISLAND
The legal rate of interest in Rhode Island in the absence of a special agreement is 12%; see Section 6-26-1. Under the provisions of 19-25-35 and 19-25-37, it is illegal to loan money or to receive interest on money in an amount greater than 21% per annum, except for duly licensed pawnbrokers and small loan businesses. The rate of interest on judgments is 12% from the date of accrual of a civil action, except in contractual actions where the interest is already provided. See Section 9-21-10.

SOUTH CAROLINA
The rate of interest for accounts or sums of money due is the rate of 8-3/4% per annum; see Section 34-31-20 of the Code of Laws of South Carolina. However, interest on judgment and decree shall be the rate of 14% from the date of entry or judgment; see Section 34-31-20 of the Code of Laws of South Carolina. The maximum finance charges on consumer loans and consumer credit sales are regulated by South Carolina Protection Code; see Section 37-1-101 et. seq. Small loan companies that are appropriately licensed in the state of South Carolina may charge specific rates of interest on sums less than $7,500 and the sums to be charged are regulated by statute. See Section 34-29-10 through 34-29-250 of the Code of Laws of the state of South Carolina.

SOUTH DAKOTA
The interest rate on loans made by a licensee is at the rate of interest specified in the loan on the contract for the unpaid balance. See Section 54-6-2.1 of the South Dakota Codified Laws. Loan contracts shall not extend over 24-1/2 months on loans under $1,000 and shall not extend beyond 36-1/2 months on loans from $1,000 to $2,500. The loan may extend to 60-1/2 months on loans between $2,500 and $5,000. See Section 54-6-20 of the South Dakota Codified Laws. Interest on judgments and statutory liens, including real estate mortgages and UCC Security Agreements, is 12% per annum. See Section 54-3-5.1 of the South Dakota Codified Laws.

TENNESSEE
The legal rate of interest in Tennessee is 10%; see Section 47-14-103 of the Tennessee Code. The maximum rate of interest for a written contract signed by a party to be charged is four (4) percentage points above the average prime loan rate as published by the federal reserve system or 24% per annum, whichever is less. See Section 47-14-103. The legal rate of interest upon judgments is 10%; see Section 47-14-121 and 47-14-122 of the Tennessee Code.

TEXAS
The legal interest in Texas is the interest allowed by law in absence of any written agreement for a particular interest rate. See Section 5069-1.01(b) of Virnen’s Texas Statutes. When no specific rate of interest has been stated, the interest shall be at the rate of 6% per annum on all accounts and contracts. Section 5069-1.03 Virnen’s Texas Statutes.

UTAH
The legal rate of interest in absence of a contract specifying or fixing the rate is 10%. See Section 15-1-1 of the Utah Code. See also the Uniform Consumer Credit Code. Judgments on contracts bear interest as agreed; otherwise, judgments bear interest at a federal post judgment interest rate, plus 2%. See Section 15-1-4 of the Utah Code.

VERMONT
The legal interest in Vermont is 12% unless a specific statute indicates otherwise. See Section 9-41(a) of the Vermont Statutes. For loans through Federal Savings & Loans, the rate of interest shall not exceed 18%, and for retail installment contracts the rate shall not exceed 18% of the first $500 and 15% of the balance. Interest on loans for current or previous model year vehicles, motor homes, farm equipment, etc. shall not exceed 18%; on older collateral, it may be 20%. See Section 9-41(a) of the Vermont Statutes.

VIRGINIA
The legal interest in the state of Virginia is 8% per annum. The legal rate is implied where an interest obligation exists, but is not stated in the contract. See Section 6.1-330.53 of the Code of Virginia. On judgments, the rate of interest is 9%. Where a contract rate is not fixed, the rate of interest rate may be that which is charged on judgments. See Section 6.1-330.54 of the Code of Virginia. Other charges for small loans, charges in advance, revolving accounts, college loans and other circumstances are also regulated by the Code of Virginia.

WASHINGTON
The legal rate of interest in the state of Washington is 12% per annum. See Section 19.52.0101(1) of the Revised Code of Washington. Unless otherwise provided in a contract, interest is simple interest and may not be compounded. For the establishment of any interest rate by written agreement between the parties to a contract, see Section 19.52.020. To determine the maximum rate that may be charged, see Section 19.52.025 of the Revised Code of Washington. Any rate charged in excess of 12% per annum must be done by agreement of the parties in writing. See Section 19.52.010 of the Revised Code of Washington.

WEST VIRGINIA
The legal rate of interest in West Virginia is 6% per annum in the absence of any written agreement establishing a different rate; see Chapter 47, Article 6, Section 5. The maximum contract rate is 8% per annum, however, a 6% rate may be used as an add-on or a discount interest may be charged on installment loans within a maximum annual percentage of 15% on discount loans. On revolving accounts or customer loans and under certain circumstances, financial institutions may charge 18% per annum on $750 and 12% per annum on the balance that exceeds $750.

WISCONSIN
The legal rate of interest in Wisconsin is 5% per annum unless the parties agree in writing to the contrary. See Section 138.04 of the Wisconsin Statutes. The maximum rate of interest is governed by Chapter 138 of the Wisconsin Statutes and, accordingly, a different rate ceiling may apply depending upon the borrower, the purpose of the loan, the security offered, and the date on which the loan was originated or refinanced.

WYOMING
The legal rate of interest in the state of Wyoming is 7% in the absence of a specific agreement that fixes the rate. See Section 40-14-106 of the Wyoming Statues. The Uniform Consumer Credit Code has been adopted by the state of Wyoming and applies relative to interest that may be charged regarding certain transactions. See Section 40-14-101 through 40-14-702 of the Wyoming Statutes. Legal interest pursuant to judgments and decree is at 10%. See Section 1-16-102(a) of the Wyoming Statutes.