There is something to be said for understanding the world of lending. If you’re in the unfortunate situation where you aren’t privy to standard loans and lending options, it’s even more important to know what you’re dealing with. Otherwise, you end up in a situation involving usury and have no idea what’s going on.
Definition: Usury is just the practice of lending money at “unreasonably high” interest rates, which is more commonly known today as predatory lenders. Fortunately, if you know what to watch for, you can generally avoid becoming a victim of this type of lending scheme. The biggest issue with usury and predatory lending is that while it’s not the most reputable practice in the world, it’s totally legal for a lot of lenders who practice it, and it’s sometimes the only option that people feel they have.
Don’t Rush Into Anything
If you are trying to avoid paying high interest rates on loans and lines of credit, you owe it to yourself to take the time to explore your options and see what’s out there. You might end up with worse terms than you thought, but you shouldn’t settle for the first loan that you get when the interest rates are through the roof. Even though there has been some usury protection put into place, many of these lenders are still operating within the law as mentioned, so it’s worth your time to pay attention.
So, is usury illegal? To an extent, there are limits on the interest rates and fees that lenders can charge for their services. However, there aren’t quite as many rules and protections as some people expect. That’s why you have to do the work of making sure that you’re working with reputable lenders.
Is There a Limit on Usurious Interest?
Historically speaking, predatory loans and loan sharks often went unregulated or at least weren’t as closely watched because they tried to fly under the radar and didn’t make a lot of fuss. However, today’s market of payday lenders, loan sharks, and other quick, high-interest, no-questions-asked loans has created a world where people are more willing to shell out the repayment for the sake of getting the fast cash that they need.
This has resulted in many lenders that are charging interest to the maximum extent that they legally can. Some tribal loans, payday loans and short-term installment loans are charged at 200 or even 300% interest, which is astronomical.
In the U.S., usury laws are regulated at the state level, which means that depending on where you live, you could pay significantly more or less for financing on the same type of credit or lending product. Some lenders will charge rates based on their state of incorporation, which is another option.
Circumventing Usury Laws
The biggest problem is that lenders and credit card companies have options for how they charge interest and incorporate their businesses. They can take advantage of states where usury laws are more lenient and incorporate there, allowing them to charge maximum interest rates and fees for lending products, as opposed to states where the laws might be stricter for better consumer protection.
Some companies in the UK and around the world will do the same thing—incorporate their business in a location with relaxed laws on usury so that they can exploit desperate consumers and those who are struggling to get the financing that they need.
You can avoid becoming the victim of loan sharks or getting consumed by the fees of usurious loans by taking the time to do your research and find the best lending solutions. Make sure that you read all the fine print, check out all of the fees and costs, and know exactly what you’re agreeing to so that you don’t get a loan that’s more expensive than it’s worth.