How Much Interest On A Loan Is Too Much Under New York Usury Law? – Financial Services

All lenders are required to charge interest on loans, but New
York State usury law protects certain borrowers from interest rates
that are too high. Usury is defined as the lending of money at an
exorbitant interest rate. In New York, the maximum rate of interest
on a loan is 16% per annum. If a lender charges more than that, it
may be liable for civil usury. Interest that is higher than 25%
constitutes criminal usury. However, there are various exceptions
to these laws depending on the type of borrower and the amount of
the loan.

INDIVIDUAL VS CORPORATE BORROWERS

In New York, individual borrowers receive significantly more
protection under civil and criminal usury laws than corporations
and LLCs. Loans under $250,000 to individuals must comply with both
civil and criminal usury rates. In contrast, loans between $250,000
and $2,500,000 are only subject to the criminal usury rate.

Rules for corporate borrowers are more complicated. Generally,
corporations and LLCs can be charged more than 16% interest. Under
the New York General Obligations Law, loans to businesses under
$2,500,000 are generally exempt from the 16% civil usury cap, but
are still subject to the 25% criminal usury cap.

Notably, all loans over $2,500,000 are exempt from civil and
criminal usury laws regardless of whether the borrower is an
individual or corporation.

REMEDIES FOR USURY

Where usury has occurred, individual borrowers can bring a lawsuit to recover any moneys paid
over the 16% or 25% interest rate. Further, individuals can assert
usury as an affirmative defense in an action by the lender for
repayment.

As discussed above, corporate borrowers can only use criminal
usury as an affirmative defense where available. However, as with
individual borrowers, they can recover what they paid over the 25%
interest rate.

Note that criminally usurious loans are also void and lenders
can lose their principal and interest.

PERSONAL GUARANTEES

Usury laws establish maximum interest rates. However, lenders
can still vary interest rates under the usury limits. Lenders base
their interest rates in part on their evaluation of the risks of
being repaid. A borrower with a poor credit history or little
collateral or income may not get a loan or will be charged a much
higher interest rate than a borrower with solid finances. In the
case of business loans, one way to get a loan and reduce interest
rates is by giving a personal guarantee.

A personal guarantee is an individual’s agreement to repay
the loan if the business defaults. Normally, with a business loan,
a lender can only sue the business for repayment. If the business
has little or no assets, the lender will be left empty-handed. With
a personal guarantee, the lender can recover from the personal
assets of the individual who made the guarantee.

In some instances, a borrower may be required to provide a
personal guarantee in order to obtain a business loan. However, one
benefit to this is that the borrower can use the guarantee to
negotiate a more favorable interest rate.

Borrowers should be careful with personal guarantees as it puts
them at significant financial risk. They could lose their business
and personal savings. It is possible to negotiate a limited
personal guarantee or there may be other options for financing.
Consulting legal and financial advisors for advice is
essential.

CONCLUSION

Borrowers are usually at a disadvantage in lending situations
and may find themselves paying too much interest on loans.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.