The maximum interest rate allowed by law in the United States is not a single number. It depends on three things: the state whose law governs the loan, the type of loan involved, and whether the lender is a bank entitled to export another state’s rate. General state usury caps for consumer loans typically run between 6% and 15% per year, with 10% the most common default. But credit cards, payday loans, mortgages, business loans, and bank-issued products each operate under separate rules, and several of those rules allow rates far above the general cap, sometimes with no ceiling at all.
The Default State Usury Cap
Every state has a usury statute that sets a default maximum interest rate. This “legal rate” applies when a contract doesn’t specify a rate or when no special exception covers the transaction. The caps range roughly from 6% to 15% per year across the country, clustering around 10%.
The legal rate and the usury ceiling are often different numbers within the same state. South Carolina sets a legal interest rate of 8.75% but allows credit card debt to carry rates up to 18%. Colorado caps consumer loans at 12% but uses a 45% threshold for non-consumer lending.
These general caps matter most for informal lending, private loans between individuals, and any transaction where no licensed lender or specialized statute applies. Once a loan falls under a specific regulatory framework, a different ceiling takes over.
Why Credit Cards Can Charge 25% When Your State Caps Loans at 12%
The answer traces to a 1978 Supreme Court decision. In Marquette National Bank v. First of Omaha Service Corp., the Court ruled that under federal law, a national bank can charge interest at the rate allowed by the state where the bank is located, not the state where the borrower lives.1Legal Information Institute. Marquette National Bank of Minneapolis v. First of Omaha Service Corp. The underlying statute, 12 U.S.C. § 85, allows a national bank to charge interest “at the rate allowed by the laws of the State … where the bank is located.”2Office of the Law Revision Counsel. 12 U.S. Code 85 – Rate of Interest on Loans, Discounts and Purchases
This “rate exportation” is why major credit card issuers are headquartered in Delaware and South Dakota, which have no usury caps on credit card lending. The bank’s home state rate travels with the loan regardless of where you live.
Congress extended the same advantage to state-chartered banks in 1980 through the Depository Institutions Deregulation and Monetary Control Act. Under 12 U.S.C. § 1831d, a state-chartered insured bank can charge interest at the rate permitted for national banks in its state.3Office of the Law Revision Counsel. 12 U.S. Code 1831d – State-Chartered Insured Depository Institutions and Insured Branches of Foreign Banks States can opt out of this provision, and a handful have. Oregon recently passed legislation blocking out-of-state banks from exporting rates above Oregon’s 36% consumer loan cap to Oregon borrowers.
The practical result: for credit cards and most bank-issued loan products, no effective federal interest rate cap exists. The limit is whatever the issuing bank’s home state allows, which in several states means no limit at all.
Rate Ceilings by Loan Type
Payday and Title Loans
Payday loans are the highest-cost consumer credit product on the market. A typical payday loan is roughly $350, due in full after two weeks. The fee looks modest as a flat charge, but annualized, the interest rate averages around 400% and can climb above 600% in states without meaningful caps. About 20 states and the District of Columbia have enacted rate caps near 36% APR or otherwise shut down payday lending. The remaining states allow triple-digit APRs to varying degrees. Vehicle title loans carry similar rates, with the added risk of repossession if you default.
Small Consumer and Installment Loans
Most states regulate small consumer loans through separate licensing statutes with tiered rate structures. A lender might charge 36% on the first $300 of a loan and a lower percentage above that. These schedules vary widely by state and require the lender to hold a specific license. Unlicensed lending above the general usury cap is illegal in virtually every state.
Mortgages
Residential mortgages are governed largely by federal regulations rather than state usury limits. The Truth in Lending Act requires lenders to disclose an APR that includes points, origination fees, and certain insurance premiums. State usury caps rarely bite on mortgages because market rates for home loans typically fall well below those ceilings, and federal preemption shields most mortgage lenders from state rate restrictions.
Pawn Loans
Pawn transactions carry their own state-regulated rate structures, usually higher than general usury limits. Rates of 2% to 25% per month are common depending on the state. If you don’t repay, the pawnshop keeps your pledged item rather than pursuing collections.
Business and Commercial Loans
Business borrowers get far less protection than consumers. Many states either exempt commercial loans entirely from usury statutes or set much higher ceilings. The most common approach is a “corporate exemption” that prevents a corporation from raising usury as a defense when sued by a lender. Some states draw the line by loan amount instead, removing the usury cap above a certain dollar threshold on the assumption that large borrowers don’t need the same protection.
SBA 7(a) loans are an exception in the other direction: the SBA caps the spread a lender can add above the base rate, with the maximum spread ranging from 3.0% on loans over $350,000 to 6.5% on loans of $50,000 or less.4U.S. Small Business Administration. Terms, Conditions, and Eligibility
Private and Family Loans
Loans between individuals are subject to usury laws just like institutional lending. If you lend money to a friend or relative at a rate above your state’s general usury ceiling, you’ve made an illegal loan even if both parties agreed. In most states, usury statutes apply to any “person,” which includes individuals; being unlicensed doesn’t create an exemption.
The IRS creates pressure from the opposite direction. Under Section 7872 of the Internal Revenue Code, a loan between related parties that charges less than the Applicable Federal Rate triggers tax consequences.5Office of the Law Revision Counsel. 26 U.S. Code 7872 – Treatment of Loans With Below-Market Interest Rates The IRS treats the difference between the AFR and the rate you actually charged as a taxable gift. The AFR changes monthly and varies by loan term. For February 2026, the short-term AFR (loans of three years or less) was 3.56%, the mid-term rate (three to nine years) was 3.86%, and the long-term rate (over nine years) was 4.70% using annual compounding.6IRS.gov. Revenue Ruling 2026-3 – Applicable Federal Rates
Charge too much and you violate usury law. Charge too little and the IRS imputes income you never received. The safe zone sits between the AFR floor and your state’s usury ceiling.
Federal Rate Caps for Military Families
Two federal laws cap interest rates for service members, and they cover different situations.
The Military Lending Act caps the Military Annual Percentage Rate at 36% on most consumer credit extended to active-duty service members, their spouses, and dependents.7Office of the Law Revision Counsel. 10 U.S. Code 987 – Terms of Consumer Credit Extended to Members and Dependents: Limitations The MAPR is broader than a standard APR, rolling in finance charges, credit insurance premiums, and fees for add-on products.8Consumer Financial Protection Bureau. Military Lending Act (MLA) Covered products include payday loans, credit cards, vehicle title loans, and most installment loans other than auto loans and certain student loans.
The Servicemembers Civil Relief Act takes a different approach. It doesn’t cap rates on new loans; it retroactively reduces interest on debts incurred before a member enters active duty. Any pre-service obligation carrying a rate above 6% per year drops to 6% for the duration of military service, and for mortgages the cap extends one year beyond the end of service.9GovInfo. 50 U.S. Code 3937 – Maximum Rate of Interest on Debts Incurred Before Military Service The excess interest is forgiven entirely, not deferred. Lenders must reduce the monthly payment to reflect the lower rate and cannot accelerate the loan balance in response.
Workarounds That Push Past State Caps
Two arrangements let non-bank lenders sidestep state usury laws.
In a rent-a-bank arrangement, a high-cost lender partners with a bank chartered in a state with no usury cap. The bank technically originates the loan, exporting its home state’s rate, then immediately sells or assigns the loan back to the non-bank partner, which services it and collects the interest. State attorneys general have challenged these partnerships with increasing success. Congress overturned the OCC’s 2020 “true lender” rule via the Congressional Review Act in 2021, removing a federal standard that would have made these arrangements harder to attack.10Office of the Comptroller of the Currency. Acting Comptroller Statement on the Vote to Overturn the OCC True Lender Rule
Tribal lending works differently. Some online lenders operate under the name of a federally recognized Native American tribe, claiming sovereign immunity shields them from state usury laws. The economics often flow to non-tribal investors who pay the tribe a fee for the use of its legal status. Courts have increasingly placed the burden on the lender to prove it is a genuine arm of the tribe rather than a third party borrowing sovereign immunity as a shield.
What Happens When a Lender Charges Too Much
Penalties for exceeding legal interest rate limits vary by jurisdiction and hit lenders hard. Under federal law governing national banks, a bank that knowingly charges a usurious rate forfeits all interest on the loan, not just the excess. If the borrower already paid the inflated interest, they can sue to recover double the amount paid, provided they file within two years.11Office of the Law Revision Counsel. 12 U.S. Code 86 – Usurious Interest; Penalty for Taking; Limitations
State-level consequences fall into a few categories:
- Interest forfeiture, the most common remedy: the borrower repays only the principal and the lender loses all interest charged.
- Loan voidability in some states, meaning the borrower owes nothing at all.
- Double or treble damages, letting borrowers recover two or three times the excess interest paid.
- Criminal prosecution at the extreme end. New York classifies charging interest above 25% per year as criminal usury in the second degree, a class E felony.12New York State Senate. New York Penal Law 190.40 – Criminal Usury in the Second Degree
The two-year federal statute of limitations creates a real deadline. If you suspect you’ve been charged an illegal rate, waiting too long can forfeit your right to recover anything beyond stopping future overcharges.
Figuring Out Which Cap Applies to Your Loan
Working out which interest rate law governs a specific loan means running through several variables at once:
- Lender type. National banks and federally chartered thrifts follow their home state’s rates under federal preemption. State-licensed lenders follow the laws of the state where they’re licensed or where the borrower lives, depending on the state. Unlicensed individual lenders fall under the general usury statute of the state governing the transaction.
- Loan type. Credit cards, mortgages, payday loans, auto loans, and business loans fall under different regulatory frameworks with different rate limits, even within the same state.
- Loan purpose. Consumer loans get the most protection. Business and commercial loans often face higher caps or none at all.
- Choice-of-law clauses. Many loan agreements specify which state’s law governs. Courts generally enforce these clauses if the chosen state has a real connection to the transaction, but a provision designed purely to evade a borrower’s home state usury protections can be struck down, especially when the borrower’s state treats excessive interest as a matter of fundamental public policy.
State usury laws don’t always define “interest” the same way the Truth in Lending Act does. Some state statutes count only the stated rate; others sweep in fees TILA would exclude. When evaluating whether a loan exceeds your state’s cap, look at the total cost of credit, not just the rate printed on the contract. If a loan agreement names a governing state you have no connection to, or if the total cost of your loan seems dramatically out of line with what other lenders charge, your state attorney general’s office or a consumer protection attorney can tell you whether the rate is legal where you live.