What Is the Maximum Interest Rate Allowed by Law in New York

What Is the Maximum Interest Rate Allowed by Law in New York?

Interest rates play a significant role in various financial transactions, from loans to credit cards. Each state has specific laws governing interest rates to ensure fair and reasonable rates for consumers and businesses. In New York, the maximum interest rate allowed by law depends on the type of transaction and the amount involved.

Understanding the maximum interest rates allowed by law in New York is crucial for borrowers and lenders alike. This article aims to shed light on the topic and provide clarity on frequently asked questions.

Maximum Interest Rates in New York:

1. Usury Laws:
Usury laws exist to protect borrowers from exorbitant interest rates. In New York, the usury laws are primarily guided by the New York General Obligations Law Section 5-501, which sets different maximum interest rates for various types of loans. The law distinguishes between personal loans, small loans, and commercial loans.

– Personal Loans: The maximum interest rate allowed for personal loans in New York is 16% per year, also known as the usury limit. This limit applies to loans for personal, family, or household purposes.
– Small Loans: Loans below $2,500 are categorized as small loans in New York. For small loans, the maximum interest rate allowed is 25%. However, the interest rate can exceed 25% if the lender is licensed and registered with the New York State Department of Financial Services.
– Commercial Loans: Loans above $2,500 or loans issued for business purposes are considered commercial loans. For commercial loans, there is no maximum interest rate set by New York law. The interest rate is generally determined by the agreement between the borrower and the lender.

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2. Credit Cards:
Credit card interest rates are not explicitly governed by usury laws in New York. Instead, they are subject to federal regulations outlined in the Truth in Lending Act (TILA). The TILA does not restrict interest rates but requires lenders to disclose the annual percentage rate (APR) and other relevant information to consumers. It is essential for credit card holders to carefully review the terms and conditions before accepting any credit card offer to understand the interest rates involved.


1. Can lenders charge interest rates higher than the maximum allowed?
Lenders can charge interest rates higher than the maximum allowed in certain circumstances. For example, licensed lenders can charge higher interest rates for small loans if they are registered with the New York State Department of Financial Services. However, exceeding the usury limit without proper authorization can render the loan void or subject the lender to legal consequences.

2. Are payday loans legal in New York?
No, payday loans are illegal in New York. These short-term, high-interest loans are not permitted due to the state’s strict usury laws. Instead, New York offers various alternatives to payday loans, such as lower-interest personal loans or financial assistance programs.

3. Do federal rules override New York’s usury laws?
Federal rules, such as those governing credit cards, do not override New York’s usury laws. While federal regulations may impact specific types of loans, New York’s usury laws still apply to loans within the state’s jurisdiction.

4. How can borrowers ensure they are not charged excessive interest rates?
Borrowers should always read and understand the terms and conditions of any loan agreement before signing. It is advisable to compare rates from different lenders and consult legal counsel if necessary. Additionally, borrowers should be aware of their rights and report any suspected violations to the appropriate regulatory authorities.

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Knowing the maximum interest rates allowed by law in New York is crucial for both borrowers and lenders to ensure fair and legal financial transactions. Understanding the differences between personal, small, and commercial loans, as well as the regulations surrounding credit card interest rates, can help individuals make informed decisions. By being aware of their rights and responsibilities, consumers can protect themselves from excessive interest rates and potential legal issues.