Understanding Usury Rates: What You Should Know

By Jacqueline DeMarco · September 17, 2022 · 7 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right.

Understanding Usury Rates: What You Should Know

A usury rate is an interest rate that denotes the boundary between what is considered an acceptable rate and what is excessive. It’s important that consumers understand usury rates so they can protect themselves against predatory lending practices.

You definitely don’t want to be paying interest rates that are so high, you could wind up with a mountain of debt that endangers your financial future. So read on for a better understanding of what usury rates are, what the law says about usury, and how you can avoid paying too high interest rates.

What Are Usury Interest Rates?

What is a usury rate? Technically, a usury rate is the maximum interest rate that can be charged. Typically, these rates are determined by state law, not federal law. The practice of usury is charging an illegally high interest rate.

Let’s consider why states put these usury protections in place. By capping interest rates, the government is helping people avoid financial difficulties. Excessive interest rates can mean that consumers can’t pay off their debt, and sadly, it can snowball. Usury laws are particularly designed with predatory lending in mind, which typically occurs with payday and auto-title products. However, the laws also prohibit lenders from charging too high interest rates on lending products like personal loans.

Is There a Maximum Interest Rate for Credit Cards?

Have you ever wondered, “Is there a maximum interest rate that credit card issuers can charge?” The answer is yes. This is one way that governments try to prevent usury. As we mentioned, this interest rate cap is usually determined by state law. If, however, a credit card issuer or bank has branches nationwide, the state where its headquarters are designated will determine the state law that applies.

This means that scenarios are possible where you will pay more than the maximum rate mandated in your state. Here’s an example: if you live in a state where the maximum interest rate is 10%, but your lender is headquartered in a state that allows 15%, guess what? You can be assessed that 15% rate.

This is why it’s so important to carefully read a credit card or bank account agreement to make sure it’s crystal clear what interest rate you will be charged.

Real World Example of Usury Rates

How exactly does a usury rate work, you ask? Let’s take a look at a real world example of usury interest rates in action.

Every month in North Dakota, the North Dakota Department of Financial Institutions publishes what the usury rate for the upcoming month will be. Again, this usury rate is the maximum amount of interest that can be charged. This usury rate is 5.5% higher than the current cost of money. The current cost of money is represented by the average rate of interest payable in the U.S. Treasury Bills maturing within six months. However, the maximum allowable interest rate ceiling can’t surpass 7%, no matter what the current cost of money is. The North Dakota usury rate for the month of April 2022 was 7%.

Now, let’s say that someone named Ned in North Dakota is seeking a personal loan. Ned has a very low credit score and isn’t having much luck at local banks. A private lender could step forward and offer a loan at 17%, saying Ned is lucky to have access to funds at all given his credit score and what a poor risk he appears to be. That is over the usury rate, and would be an example of usury if Ned took the loan at that steep cost.

What Is Usury Law?

Usury laws are in place to stop lenders from charging too high of interest rates on lending products such as auto loans or personal loans. States have different laws and regulations that set usury interest rates on a state level. To whom usury laws apply can also vary on a state level.

For example, certain states have usury rate caps on how much finance companies (aka not banks) can charge consumers for small-value loans. Examples of these include payday and auto-title products.

How Do Usury Laws Vary From State to State?

As previously noted, usury rates are state-specific. The details of an interest rate cap and to whom these laws apply may vary. If you live in Massachusetts and your best friend is in Minnesota, it’s quite possible that you will have different usury rates and other legal guidelines.

What Is the Penalty for Violating Usury Laws?

Now, let’s look at what happens if someone extends credit at a too high rate. Remember our Ned in North Dakota example; what if he did borrow money at a rate 10% above the guideline? His lender could be in quite a bit of legal trouble. If a lender willfully receives interest in violation of the usury laws, they will be considered guilty of loan sharking. This charge is punishable by a fine (which could be returning interest plus a fee, for example) and/or imprisonment.

How Can I Tell if the Interest Rate on My Credit Card Is Illegal?

Maybe you’re shocked by how high your credit card’s interest rate is and wonder if it’s legal or not. Because the usury rate varies by state, it’s important for consumers to do some research on what the current usury rate is in their state. But, let’s remember that hitch we mentioned above: Your credit card issuer may be headquartered in a different state. You’ll need to see where that is, and check that location’s rate as well. Then, you can compare the interest rate listed in the account agreement to the current usury rate in the state where they are based. That will reveal if your rate is legal or not so much. Should you discover you’re paying too much, legal action is a possibility.

Is There Anything I Can Do About High Interest Rates?

Even if an interest rate is legal, it can still feel painfully high and make it a challenge to repay a loan. To help secure lower interest rates in the future, consumers can take steps to improve their credit score. The higher someone’s credit score is, the more likely they are to receive a lower interest rate. This can save them a considerable amount of money over the life of their loan (like a student loan). Having a good credit score in the 700s can make it easier to qualify for the best interest rates.

To improve a credit score, consumers can take the following steps:

•   Make on-time payments. Making loan and credit card payments on time every single month improves a credit score over time. You might try using automatic payments from your checking account and electronic reminders to make sure a payment isn’t accidentally missed.

•   Keep credit utilization rate low. Keeping their credit utilization rate (aka how much of your available credit they’re using) low can help boost a credit score. Aim for a balance that’s no more than 30% of your credit limit; 10% is even better. Paying off revolving balances each month can help keep this rate low.

•   Double check credit report for errors. Mistakes happen! And an error on a credit report can be an expensive one; it can damage your score. It’s a good idea to review credit reports carefully from time to time to look for mistakes. It’s possible to dispute these errors and have them removed from the credit report, thereby improving your score.

It takes time to see the results from these efforts. But it’s wise to stay the course: Raising a credit score can make it easier to qualify for better lending products at more favorable interest rates.

The Takeaway

An usury rate is the maximum interest rate a lender is legally allowed to charge a borrower. Usury itself is the practice of charging excessively high interest rates, and this can have legal consequences. Because usury rates are state specific, it’s important to become familiar with what the usury rate in your state is, as well as the state where your lender is headquartered. By understanding interest rates and avoiding sky-high ones, you can take better control of your money and improve your financial health.

Here’s another way to boost your financial wellness: by partnering with a bank that doesn’t charge you fees and pays you an excellent interest rate. That’s what you’ll enjoy when you bank with SoFi. Sign up for a new bank account with direct deposit, and earn a fantastic APY while paying zero account fees.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.


What is the highest legal interest rate?

The highest legal interest rate a lender can charge varies state by state. This interest rate cap is known as an usury rate, and each state sets their own limits.

Is charging a high interest rate legal?

That depends on someone’s definition of a “high” interest rate. There are limits in place on how much interest lenders can charge (known as usury rates). These guidelines are designed to help consumers avoid predatory interest amounts.

What interest rate is predatory lending?

An interest rate that surpasses the usury rate (aka the highest interest rate a lender can legally charge) in the state the borrower or lender resides in is considered to be predatory lending.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

This article is not intended to be legal advice. Please consult an attorney for advice.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

Photo credit: iStock/MicroStockHub

TLS 1.2 Encrypted
Equal Housing Lender