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Hypocrisy_Central's avatar

Does usury apply to private people entering noncommercial loan deals?

Asked by Hypocrisy_Central (20282 points ) March 16th, 2012

If you have two private people, like Joe Six pack, and Polly Purebread who enter a deal. Polly Purebread really wants to go on a cruise with her grand mother. She knows Joe six pack just received a sum of money from his uncle from a trust account. She offers to give him 26% interest on the dollar if he loans her money to make possible for her and her grand mother to go on a cruise. If he accepts, is that an illegal loan deal because of usury constraints, or is that only for entities that loan as a business, like banks, savings and loans, etc? Can private people make whatever interest both parties agree?

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2 Answers

gailcalled's avatar

There is a lot of distracting verbiage there, but I assume you are asking about the usury laws in the US for private parties?

It varies by state but is regulated.

Usury laws:

bolwerk's avatar

As I understand it, usury laws are described in APRs. 26% by itself doesn’t say anything Is that a week? Then it’s probably usurious. A year? Probably not. A decade? Certainly not.

One week -> .26*52 weeks = APR of 1352%
One year -> APR of 26%
A decade -> = 26%/10 years = APR of 2.6%

I think that’s how it works, anyway. The period of the loan is a critical factor.

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