What is considered to be a usurious interest rate?

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What is considered to be a usurious interest rate?

I borrowed $2000 from a friend almost 4 years ago who put it into a secured contract. The contract states that the interest rate is 20% and I would owe at least $400 in interest. The secured part of the contract was a car that was sold years ago. My friend had given me back my title for it. Is the interest rate breaking the MI usury laws? Did I break the contract by selling the car even though he returned the title to me? Is there a max in fees/interest because he says he can sue me for $3000, but I don’t think he has the legal ability to get $1000 in interest/fees.

Asked on August 16, 2011 Michigan

Answers:

FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 10 years ago | Contributor

All states in this country have laws against excessive interest rates charged for loans called "usury laws." The laws on this subject are typically set forth in a state's Constitution Code. Typical allowable interest rates in a transaction not invovling real estate is prime rate (tied to certain major indexes) plus 5%.

The 20% interest rate charged by your friend for a $2,000 almost four (4) years ago for a car loan seems too high for accepted loans in 2007. If the 20% interest rate exceeds your state's usury laws, the typical result is that the loan ends up having no accrued interest upon it as a penalty and any interest paid on the loan is applied to principle owed.

You did not break the agreement by selling the car since you had title unless the agreement called for payment of the loan in full if the car was sold.


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