How much interest can a lender charge?

Interest is the money a lender charges to borrow their money. The amount of interest a lender can charge is governed by federal and state laws. There is a special law called Usury law that prevents lenders from charging too much for interest. There are many exceptions to this Usury law. Each state and each lending situation has its own laws governing the amount of interest that can be charged.

As you have probably noticed usually a home mortgage is the lowest interest rate at least in recent years. It is common to find interest rates for 30 year mortgages as low as 7%. Credit cards usually charge the most interest from 9-25% interest. These are called "retail installment transactions" and included department store cards, Visas, and MasterCard's.

Obviously consumers want the lowest interest and lenders want the most. These Usury laws help protect and give the fairest rate for both.

In general the more immediately and quickly you get the money as well as the assets used to cover the loan (i.e. on your mortgage your home is the asset that the loan is based on, on a credit card there really are no assets that cover the loan) determine the rate of interest a lender can charge. So the payday loans or check postdating services are able to charge exorbitant rates of interest because they are governed by different laws.

As you are researching loans you should also know that national banks ones with N.A. are also able to charge higher rates of interest than other banks and credit unions.

If you are wanting to lend money than you need to consult a knowledgeable lawyer to make sure your contract is legal and doesn't break any Usury laws of your state. A good attorney will know how much interest a lender in your state can charge

The interest a lender can charge is calculated with a Annual percentage rate or APR this number may also include many of the fees that go into your loan but sometimes it doesn't so you have to be careful and read the fine print because the interest you are charged should include these fees as well because it is part of the cost of the money you are borrowing.

These fees ARE generally included in the APR:

• Points - both discount points and origination points


• The interest paid from the date the loan closes to the end of the month sometimes called Prepaid interest. Most mortgage companies assume 15 days of interest in their calculations. However, companies may use any number between 1 and 30! You will want to check this one because this could make it much more.


• Loan-processing fee


• Underwriting fee


• Document-preparation fee


• Private mortgage-insurance

These fees are SOMETIMES included in the APR:

• Loan-application fee


• Credit life insurance (insurance that pays off the mortgage in the event of a borrowers death)

The following fees are normally NOT included in the APR:

• Title or abstract fee


• Escrow fee


• Attorney fee


• Notary fee


• Document preparation (charged by the closing agent)


• Home-inspection fees


• Recording fee


• Transfer taxes


• Credit report


• Appraisal fee

As you can see it takes some research to find out what the real cost of the loan will be that is why you should always ask each lender for a truth in lending disclosure. This document will list all these fees and what you will be charged for each. Just as you would get several bids on a home improvement project or a new car so too you should get several truth in lending reports to bid for your interest. Interest never sleeps or gets sick so the borrower wants it to be the least amount possible.

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Categories: Loans,

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