Usury Laws by State
for Private Money Lenders

By Anthony Geraci, Managing Partner & CEO, Geraci LLP  |  August 2025

Usury laws set the maximum interest rate a lender can legally charge. For private money lenders, understanding these limits is essential — not because they're always restrictive, but because the penalties for violating them can be devastating. In some states, a usury violation voids the entire loan. In others, it exposes the lender to treble damages, forfeiture of all interest, or even criminal penalties.

This guide covers what private money lenders and hard money lenders need to know about usury laws in every state, including the business-purpose exemptions that most private lenders rely on.

Related: Private Money Lender Compliance Guide 2026  |  How to Lend in Multiple States  |  Complete Guide to Loan Documents

How Usury Laws Work for Private Money Lenders

Every state sets its own usury limits, and the rules can be complex. There is no single federal usury law that applies to all consumer or commercial lending. Instead, lenders must navigate a patchwork of state statutes that vary by loan type, loan amount, lender type, and whether the loan is for consumer or business purposes.

For private money lenders, the analysis typically comes down to three questions: (1) Does the state have a business-purpose exemption? (2) If so, what are the requirements to qualify? (3) If not, what is the maximum rate for this type and size of loan?

The Business-Purpose Exemption

The business-purpose exemption is the single most important legal concept for private money lenders regarding usury. The majority of private money loans are made to borrowers who are purchasing, renovating, or refinancing investment properties — not properties they intend to occupy as their primary residence. This makes them business-purpose loans, and most states either exempt business-purpose loans from usury limits entirely or impose significantly higher rate caps.

States with broad business-purpose exemptions include California (for licensed lenders and loans over certain thresholds), Texas (for commercial loans), Colorado (for supervised loans), Florida (for commercial loans above $500,000), and many others. In these states, private money lenders can generally charge market rates without usury risk, provided the business purpose is properly documented.

States with limited or no business-purpose exemptions require more careful analysis. Arkansas, for example, has a constitutional usury limit of 17% above the Federal Discount Rate (approximately 21-22% in current markets) that applies to virtually all loans. New Jersey's criminal usury statute applies at 30% for individual lenders and 50% for corporate lenders, regardless of business purpose.

State-by-State Overview: Key Markets for Private Money Lenders

California: The most active private money lending market in the country. California's usury law (Article XV of the state Constitution) sets a general cap of 10% for consumer loans. However, licensed real estate brokers, DRE-licensed lenders, and DFPI-licensed lenders are exempt from this cap. Most private money lenders operating in California hold one of these licenses, effectively eliminating usury risk for business-purpose loans.

Texas: No usury limit for commercial loans (loans made primarily for business, commercial, investment, agricultural, or similar purposes) above $250,000. For smaller commercial loans, the limit is 18%. Texas is one of the most lender-friendly states for private money lending from a usury perspective.

Florida: The general usury limit is 18% for loans under $500,000 and 25% for loans above $500,000. Criminal usury is 25% (45% for business loans). Business-purpose loans over $500,000 are largely exempt. Private money lenders in Florida must be careful with smaller loans that approach the 18% threshold.

New York: Civil usury limit of 16% and criminal usury limit of 25%. There is a limited exemption for certain commercial loans, but New York's usury laws are among the most restrictive for private money lenders. Loans above $2.5 million are generally exempt from civil usury.

Arizona: No usury limit for any loan type. Arizona is the most permissive state in the country for private money lending interest rates. Parties can agree to any rate in a written contract.

Colorado: The general usury limit is 45% APR for supervised consumer loans. Business-purpose loans have separate and generally more permissive treatment.

Georgia: The general usury limit is 5% per month (60% per year) for loans under $3,000, and varies for larger loans. Business-purpose loans above certain thresholds have limited usury restrictions.

Nevada: No usury limit on loans to businesses or for business purposes. For consumer loans, the cap is tied to the federal discount rate.

Default Interest and Late Fees

A common trap for private money lenders is default interest. Many loan documents include a provision that increases the interest rate upon borrower default — sometimes by 5-10 percentage points. If this default rate pushes the total interest above the state's usury limit, the lender may have a usury problem even if the original rate was compliant.

Similarly, late fees, prepayment penalties, origination fees, and other charges can be treated as "interest" under some states' usury analysis. California, for example, includes most loan charges in its usury calculation. Private money lenders must ensure that the all-in cost of the loan, including fees and charges, does not exceed applicable limits.

Penalties for Usury Violations

The consequences of a usury violation vary by state but can be severe. Common penalties include forfeiture of all interest (the borrower keeps the principal but pays no interest), treble damages (the borrower recovers three times the usurious interest paid), voiding of the loan (the entire loan is unenforceable), and in extreme cases, criminal liability (fines or imprisonment).

In practical terms, the most damaging consequence for private money lenders is having a court void the loan or strip all interest. This means the lender effectively made a free loan — or worse, if the borrower defaults and the lender cannot enforce the security instrument, the lender loses both the interest and the principal.

How Automate Loan Docs Handles Usury Compliance

Automate Loan Docs is built to address usury compliance as part of the document generation process. When you enter your loan terms and select the state, the platform's compliance engine checks the rate and fee structure against applicable state limits. It flags potential issues and applies state-specific provisions, including savings clauses that protect lenders in the event of an inadvertent usury violation.

Every document template on the platform includes an attorney-drafted usury savings clause — a provision that automatically reduces any interest or charges to the maximum permitted amount if a court determines the charged rate exceeds the applicable limit. These clauses don't guarantee protection in every jurisdiction, but they provide a critical layer of defense that generic templates and lender-drafted documents typically lack.