Usury and Maximum Interest Rates in New York (2025): A Guide for Lenders and Borrowers
Introduction
What is the maximum legal interest rate in New York? Both lenders and borrowers ask this question when negotiating loans, private financing, or real estate transactions. Under New York usury law, charging interest above the legal limit can make a loan unenforceable, or even criminal.
This article explains the usury limits in NY, the difference between civil usury (16%) and criminal usury (25%), and the key exceptions under New York law that every borrower, private lender, and real estate investor should know.
What is Usury Under New York Law?
Usury in New York means charging more interest than the law allows. The state sets two clear thresholds:
- Civil Usury Cap: 16% annual interest
- Criminal Usury Cap: 25% annual interest
Loans that exceed these limits may be declared void, unenforceable, or subject to criminal penalties.
Civil Usury Law in New York: 16% Maximum Interest Rate
Under General Obligations Law § 5-501, the civil usury rate in NY is capped at 16% per year.
- Applies to most loans under $250,000 made to individuals (not corporations or LLCs).
- Borrowers can assert usury as a defense and avoid paying unlawful interest.
- Any payments above 16% may be subject to refund.
Under General Obligations Law § 5-501, the 16% civil usury cap applies broadly to “the loan or forbearance of any money, goods, or things in action.” In practice, this means that when a creditor agrees to delay or forbear collection of a debt in exchange for interest, that interest is subject to the same usury restrictions as if the debt were evidenced by a promissory note at the outset.
Usury limits do not cover every type of payment. For example, late fees or unpaid rent under leases are not subject to usury laws. But if a creditor agrees to forbear collection of those amounts in exchange for interest, usury restrictions may apply.
Criminal Usury in New York: 25% Maximum Interest Rate
Under New York Penal Law §§ 190.40–190.45, charging more than 25% per year is criminal usury.
- Interest above 25% is a felony offense.
- A criminally usurious loan may be declared void, leaving the lender unable to recover either interest or principal.
- This prohibition applies to both individuals and corporations unless an exemption applies.
Exceptions to New York Usury Laws: Large Loans, Corporations, Real Estate
Not all loans are capped by the 16% and 25% thresholds. Important exceptions include:
1. Large Loans
- $250,000 or more: Not subject to the civil usury cap, but criminal usury (25%) still applies. (GOL § 5-501(6)(a))
- $2.5 million or more: Exempt from both civil and criminal usury limits. (GOL § 5-501(6)(b))
2. Corporate Borrowers
- Corporations and LLCs generally cannot claim the 16% civil usury defense. (GOL § 5-521; NY LLC Law § 1104)
- They are still protected against criminal usury (25%).
- Exception: if the entity’s main asset is a 1–2 family residence and it was formed, or its controlling interest was acquired, within six months before signing a loan secured by that property, it may claim the usury defense. (GOL § 5-521(2)).
3. Real Estate Loans
- Purchase-money mortgages are not considered “loans” under the usury statute. Mandelino v. Fribourg, 23 N.Y.2d 145, 242 N.E.2d 823 (1968).
- Default or penalty interest rates above 16% are often enforceable if clearly agreed upon. Usury defenses do not apply where the excessive rate is triggered only after default or maturity. “The defense of usury does not apply where, as here, the terms of the mortgage and note impose a rate of interest in excess of the statutory maximum only after default or maturity.” Miller Plan. Corp. with Delta Funding Corp. v. Wells, 253 A.D.2d 859, 678 N.Y.S.2d 340 (1998).
4. Licensed & Government Lenders
- Banks, credit unions, and other licensed lenders operate under separate statutes.
- Government-backed loans (FHA, VA, etc.) may follow federal interest frameworks rather than state usury caps.
Why Usury Laws Matter for Real Estate Investors
For real estate investors and private lenders in New York, understanding usury laws is critical:
- Private lenders and hard money lenders must draft loan documents carefully to avoid usury violations.
- Borrowers may use usury laws to avoid repayment or invalidate interest charges.
- Investors structuring LLCs should consider whether usury defenses apply to their entities.
Frequently Asked Questions (NY Usury Law)
Q1: What is the maximum interest rate allowed in New York?
- 16% (civil usury) for most loans, 25% (criminal usury) for all loans under $2.5M.
Q2: Can corporations claim usury as a defense?
- Depending on the circumstances, not for civil usury, but they are protected from criminal usury above 25%.
Q3: Are loans over $2.5 million exempt from usury laws?
- Yes, they are exempt from both civil and criminal usury limits.
Q4: What happens if a loan is criminally usurious?
- It can be declared void, and lenders may lose the right to recover principal or interest.
Conclusion
The maximum interest rate in New York depends on the loan amount, borrower type, and applicable exceptions. While the basic limits are 16% for civil usury and 25% for criminal usury, large loans, corporate borrowers, and certain real estate transactions may be exempt. What may appear straightforward often involves complex analysis of statutes, case law, and transaction structure.
Both lenders and borrowers should consult an experienced New York real estate attorney before finalizing a loan. A misstep can turn a profitable deal into an unenforceable, and potentially criminal, arrangement.
If you are a borrower, lender, or real estate investor in New York and need guidance on usury laws, maximum legal interest rates, or structuring loans, contact Elad Michael, Esq. for a consultation.