There is no single maximum interest rate allowed by law in the United States. The legal ceiling on interest depends on three things: the state whose law governs the loan, the type of credit involved, and whether the lender is a bank operating under federal preemption. General state caps on consumer loans usually run between 6% and 15% per year, but credit cards, payday loans, and other bank-issued products routinely charge far more through legal carve-outs. The number most people assume is the limit is rarely the number that actually applies.
The Baseline: State Usury Caps
Every state has a usury law that sets a default maximum rate. These “legal rates” apply when a loan contract doesn’t specify a rate or when no special statute covers the transaction. Ten percent is the most common default figure, with state caps ranging roughly from 6% to 15%.
The general cap and the usury ceiling inside a single state are often two different numbers. South Carolina sets a legal interest rate of 8.75% but allows credit card debt up to 18%. Colorado caps consumer loans at 12% and uses a 45% threshold for non-consumer lending. These baseline numbers matter most for informal loans, private lending, and situations where no licensed lender or special statute applies. Once a transaction falls under a specific regulatory framework, a different rule takes over.
Why Credit Cards and Banks Can Charge More Than Your State’s Cap
The reason a credit card can charge 25% interest even if your state caps consumer loans at 12% traces back to a 1978 Supreme Court decision. In Marquette National Bank v. First of Omaha Service Corp., the Court ruled that 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, says a national bank may 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” principle is why major credit card issuers are headquartered in Delaware and South Dakota, states with no usury cap on credit cards. The bank’s home-state rate travels with the loan regardless of where the borrower opens the envelope.
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 home 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, and a handful have. Oregon recently passed legislation to block 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 products, no effective federal cap exists. The limit is whatever the issuing bank’s home state allows, and in several states, that means no limit at all.
Rate Ceilings by Loan Type
The spread between categories is enormous. Two loans of the same dollar amount, made to the same borrower on the same day, can legally carry rates that differ by a factor of fifty depending on how the loan is structured.
Payday and Title Loans
Payday loans sit at the top of the cost scale. A typical payday loan runs around $350 and is due in full after two weeks. Annualized, the interest rate averages roughly 400% and can exceed 600% in states with no meaningful caps. About 20 states and the District of Columbia have enacted rate caps near 36% APR or taken other steps that effectively end payday lending. The rest allow triple-digit APRs to varying degrees. Vehicle title loans carry similar rates, plus the added risk of repossession.
Small Consumer and Installment Loans
Most states license small consumer lenders under separate statutes that set tiered rate structures. A lender may be permitted 36% on the first $300 of a loan and a lower percentage on amounts above that. These schedules vary widely and generally require a specific license. Unlicensed lending above the general usury cap is illegal in virtually every state.
Mortgages
Home loans are governed largely by federal rules rather than state usury caps. The Truth in Lending Act requires disclosure of an APR that includes points, origination fees, and certain insurance premiums. State usury caps rarely bind mortgages because market rates typically fall below the ceilings, and federal preemption shields most mortgage lenders from state rate restrictions.
Pawn Loans
Pawn transactions have their own state-set rate schedules that generally sit above general usury limits. Monthly rates of 2% to 25% are common. If you don’t repay, the pawnshop keeps the item rather than pursuing you for a deficiency.
Business and Commercial Loans
Business borrowers get far less protection than consumers. Many states exempt commercial loans from usury statutes entirely 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. Some states instead draw the line at loan size, removing the cap above a set dollar threshold.
SBA 7(a) loans are the exception on the business side, with the SBA capping the spread a lender can add above the base rate. The maximum spread ranges 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
Loans Between Individuals
Private loans are subject to state usury laws the same as institutional lending. Lending to a friend or relative at a rate above your state’s general ceiling makes the loan illegal, even if both sides agreed. Being unlicensed doesn’t create an exemption; most usury statutes apply to any “person.”
The IRS creates the opposite pressure. Under Section 7872 of the Internal Revenue Code, a loan between related parties that charges less than the Applicable Federal Rate (AFR) triggers tax consequences.5Office of the Law Revision Counsel. 26 U.S. Code 7872 – Treatment of Loans With Below-Market Interest Rates The gap between the AFR and the rate you actually charged is treated as a taxable gift from lender to borrower. The AFR changes monthly and varies by term. For February 2026, the short-term AFR (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
Private lenders are squeezed from both ends: charge too much and you violate usury law; charge too little and the IRS imputes income you never received. The safe zone runs from the AFR up to your state’s usury cap.
Stricter Caps for Military Borrowers
Two federal laws set lower ceilings for service members, and they cover different situations.
Military Lending Act
The Military Lending Act caps the Military Annual Percentage Rate (MAPR) 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 sweeps in more than a standard APR, including 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, though auto loans and certain student loans are excluded.
Servicemembers Civil Relief Act
The SCRA works retroactively. Debts incurred before a service member enters active duty are capped at 6% interest for the duration of the 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, not deferred. Lenders must also reduce the monthly payment to reflect the lower rate and cannot accelerate the loan in response.
If You’ve Been Charged an Illegal Rate
Penalties for exceeding legal rate limits vary by jurisdiction but tend to 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.10Office of the Law Revision Counsel. 12 U.S. Code 86 – Usurious Interest; Penalty for Taking; Limitations
State-level consequences run along a spectrum:
- Interest forfeiture is the most common remedy. The borrower repays only the principal, and the lender loses all interest.
- Some states void the loan entirely, meaning the borrower owes nothing at all.
- Several states allow borrowers to recover double or triple the excess interest paid.
- A few states treat usury as a felony. New York classifies charging interest above 25% per year as criminal usury in the second degree, a class E felony.11New 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 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
Identifying the governing rate law requires working through several variables at once.
- Lender type matters most. National banks and federally chartered thrifts follow their home state’s rules under federal preemption. State-licensed lenders follow the law 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 sets the framework. Credit cards, mortgages, payday loans, auto loans, and business loans each fall under separate rules with different limits, even in the same state.
- Loan purpose matters. Consumer loans get the most protection. Business and commercial loans often face higher caps or none.
- Choice-of-law clauses can shift the analysis. Many loan agreements name a governing state, and courts generally enforce those clauses when the chosen state has a real connection to the transaction. A provision designed purely to evade a borrower’s home state usury law can be struck down, especially where the borrower’s state treats excessive interest as a matter of fundamental public policy.
Also watch how “interest” is defined. The Truth in Lending Act requires an APR that includes origination fees, points, and certain insurance premiums, but state usury laws don’t always define interest the same way. Some statutes count only the stated rate; others sweep in fees TILA would exclude. A loan that looks compliant under one definition can be usurious under another, especially with fee-heavy products where the stated rate is modest but total borrowing costs balloon. Look at the total cost of credit, not just the rate printed on the contract.
If a loan names a governing state you have no connection to, or if the total cost seems dramatically out of line with what other lenders charge for the same product, those are signals worth investigating. Your state attorney general’s office or a consumer protection attorney can tell you whether the rate you’re being charged is legal where you live.