As a lender, avoiding usurious rates in your transactions is a priority. The several state rules on usury apply to you when performing a transaction. If you would employ someone else to handle the responsibility of ensuring that your transactions are free of usury, contact us today.
The goal of private lenders is to develop wealth while assisting people. However, because of the higher interest rates connected with private money lending, lenders must be aware of the state’s usury regulations before lending. Borrowers are protected from exploitative lending by usury laws, which set minimum interest rates and costs.
While it may appear straightforward, the complexities of usury law can be challenging to manage, especially when compounding interest and fees are involved. Furthermore, the lender bears the brunt of the responsibility. That means the lender is still liable even if the borrower proposes a usurious interest rate. Here are tips to avoid usury liability as a lender.
- Notify your borrower when applicable: In the case of a violation such as excess payments, lenders can avoid penalties by acting fast once they learn of the violation. For example, if a borrower provides written notification of usury to the lender, the lender must fix the violation and provide written notice to avoid liability.
- Including usury savings clauses in the loan agreements: Usury savings clauses should also be included in loan agreements by lenders. If interest rates exceed state standards, these clauses attempt to reclassify interest payments as principal or allow the borrower to receive a refund of excess payments.
- Be informed about your state’s lending rules: Several states have a lower interest rate threshold if there is no formal lending agreement. On the other hand, invoices with interest clauses can be considered a written contract, allowing lenders to charge higher interest rates than contract-based lending.
It’s critical to understand the intricacies of usury law in the states where you’re lending as you are looking to avoid usury liabilities as a private lender. To read more on several ways to avoid usury liabilities and penalties, click here.
Note Servicing Center provides professional, fully compliant loan servicing for private mortgage investors so they can avoid the aggravation of servicing their own loans and just relax and get paid.
Contact us today for more information.